The week ahead features key US inflation data (Tue), the Fed’s Beige Book (Wed), and corporate earnings from major banks and corporations. Later today, remarks are due from Fed officials Williams, Barkin and Bostic, alongside the ECB’s Guindos. On Tuesday, the focus turns to US CPI, new home sales and the federal budget balance, while Fed official Musalem delivers an outlook on the economy. China’s trade data sets the tone on Wednesday, followed by US PPI, retail sales and existing home sales. The Fed’s Williams will speak on “An Economy That Works for All”, with fellow policymakers Kashkari, Paulson and Bostic also appearing at separate events. Thursday brings UK and eurozone trade and industrial production figures, alongside US initial jobless claims and the Empire State manufacturing survey. The week concludes with Germany’s CPI, US industrial production data, and a speech from Fed Vice-Chair Jefferson.
Geopolitical developments, mixed US economic data and a series of political events in the US contributed to uncertain market sentiment last week. The yield on the 10-year UST strengthened 3bps to 4.17%, while the S&P Index gained 1.57%. The dollar, DXY Index, was up 0.72% as markets reassessed the Fed’s easing path. We have, however, started the week with the dollar paring some of last week’s gains as the Fed’s independence is once again in question, as the Trump administration ramped up the campaign against the central bank’s Chair, Powell. Meanwhile, oil enjoyed further gains, closing 4.26% higher at $63.34pb.
Last week’s US data releases began on a mixed note, with a disappointing ISM Manufacturing reading. This was followed by a softer-than-expected S&P Global services PMI and a downbeat ADP employment report. The ISM Services Index later surprised to the upside, its employment component jumped into expansion in December. JOLTS job openings moderated, accompanied by downward revisions to prior months. Factory orders undershot expectations, while durable goods were flat at -2.2%.
Markets’ attention, however, was firmly on Friday’s employment report, which also fell short of forecasts. December’s payroll figures confirm that the US labour market has entered a period of stagnation, with nonfarm payrolls increasing by just 50,000, cementing 2025 as the weakest year for job creation since the pandemic. Although the unemployment rate edged down to 4.4%, the move largely reflected a declining participation rate, now at 62.4%. In addition, persistent negative revisions and distortions in BLS reporting reinforce the view that underlying labour market conditions are softer than headline data suggests. Elsewhere, the Chinese renminbi remains firm, with USD/CNH holding below the key 7.00 level following December’s data releases. Headline CPI rose to 0.8%yoy its highest reading since February 2023, driven primarily by higher food prices, while core CPI remained unchanged at 1.2%, underscoring still-subdued underlying demand. Deflationary pressures however persist in the industrial sector, with PPI at -1.9%yoy. Authorities appear comfortable with gradual currency appreciation, which supports household purchasing power and aligns with the policy objective of rebalancing growth towards consumption.
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