The financial markets have been a whirlwind of activity, with major assets showing mixed results. Traders are digesting the European Central Bank’s (ECB) latest rate cut, disappointing U.S. GDP figures, and escalating trade tensions with potential U.S. tariffs targeting Canadian and Mexican goods.
So, how have your preferred markets fared in the last round of trading? Let’s dig into the details:
Key Headlines:
- In New Zealand, business confidence dropped from 62.3 to 54.4 in January, while both pricing and cost indicators saw an increase.
- Australia’s Q4 2024 import prices edged up by 0.2% quarter-over-quarter, missing the 1.5% forecast, following a previous decline of 1.4%.
- France reported a slight contraction in its Q4 2024 GDP, recording -0.1% quarter-over-quarter, diverging from the expected stable reading.
- Switzerland’s December trade surplus narrowed to 3.49 billion CHF, below the projected 4.50 billion CHF, as exports surged by 5.1%, outpacing the 1.6% rise in imports.
- Germany’s preliminary GDP data for Q4 2024 showed a 0.2% quarter-over-quarter decline, deeper than the forecasted 0.1% drop.
- The UK revealed a December net individual lending figure of £4.6 billion, surpassing both the forecasted £3.6 billion and the previous £3.5 billion.
- The Euro Area’s flash GDP for Q4 2024 came in at a stagnant 0.0% quarter-over-quarter, below the expected 0.1% increase.
- The ECB reduced its three key interest rates by 25 basis points, hinting at further easing in the coming months.
- The U.S.’s Advance GDP for Q4 2024 recorded a 2.3% quarter-over-quarter growth, missing the 2.7% forecast.
- U.S. initial jobless claims for the week ending January 25 were at 207,000, falling below expectations, which were pegged at 224,000.
- U.S. pending home sales in December fell by 5.5% month-over-month, contrary to the expected stable outcome.
- Japan’s core CPI in Tokyo for January matched forecasts at a 2.5% year-over-year increase.
Market Overview:
The broader market saw significant fluctuations post-ECB’s rate cut and the U.S. tariff warning on its North American neighbors. The ECB lowered its rates by 25 basis points to 2.75%, marking its fifth consecutive cut, with further reductions hinted at by ECB President Christine Lagarde amidst sluggish eurozone growth.
Gold emerged as a star performer, inching closer to $2,800 as investors flocked to safe-haven assets, spurred by trade tensions and a softening dollar. Despite mixed earnings from tech giants, the S&P 500 managed to finish with gains—IBM outshining while Microsoft faced setbacks due to less optimistic projections.
U.S. Treasury yields dipped to a one-month low, with the 10-year yield settling at 4.51%, largely due to weaker-than-anticipated Q4 GDP figures. Bitcoin remained sturdy, hovering above $104,000, showing resilience amid market turbulence and skepticism from Lagarde about its potential inclusion in central reserves.
The oil market experienced a volatile session, with West Texas Intermediate (WTI) concluding at $73.20 after varying between $72.00 and $73.80. The prices have been swayed by bearish inventory reports and potential disruptions linked to changing global trade dynamics.
FX Market Analysis: U.S. Dollar vs. Major Currencies:
The U.S. dollar maintained its stance amidst heightened volatility from Thursday’s unfolding events. In Asia, the USD/JPY slipped, likely due to Japanese markets, being open while several other Asian financial hubs were closed, reacting to the Fed’s steady rate stance and dovish tones.
Across Europe, the dollar traded within a range despite Germany’s tepid GDP numbers and the ECB’s rate adjustments. It weathered the storm during Lagarde’s press conference, where she maintained a balanced outlook on future rate directions, hinging on upcoming economic data.
The U.S. session saw increased volatility as Q4 GDP figures fell short of expectations. Nevertheless, strong jobless claims figures offered some strength to the dollar, which ultimately found its footing despite concerns over new tariffs announced by President Trump on imports from Canada and Mexico. The yen emerged as the strongest performer, while the euro dipped slightly, indicating that the ECB’s rate cut was already expected by the markets.
Upcoming Economic Catalysts:
- Japan will report housing starts at 5:00 am GMT.
- Germany is set to release retail sales data at 7:00 am GMT.
- The UK will reveal the Nationwide house price index, also at 7:00 am GMT.
- Germany’s preliminary CPI data will be watched closely during the European session.
- Switzerland’s retail sales figures are on the docket for 7:30 am GMT.
- France will publish its preliminary CPI at 7:45 am GMT.
- The update on Germany’s unemployment change is due at 8:55 am GMT.
- Canada’s GDP figures are scheduled for release at 1:30 pm GMT, alongside several U.S. economic indicators including the core PCE price index, employment cost index, and personal income and spending data.
- A speech by U.S. FOMC member Michelle Bowman is also anticipated at 1:30 pm GMT.
- Finally, the U.S. Chicago PMI will be reported at 2:45 pm GMT.
European traders will likely be on edge awaiting German data, particularly the preliminary CPI, which could reinforce the ECB’s dovish approach. Over in the U.S., attention will be on the core PCE price index, Canadian GDP, and comments from Federal Reserve Board member Bowman—a trio of events occurring at a time of heightened trade tensions and recent central banking decisions.
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