Key points:
Equities: Broad losses, inflation concerns, tech sector under pressure, energy outperforms, earnings season focus
Volatility: Elevated, VIX at 19.54, implied moves for SPX at 1.84%, NDX at 2.24%
Digital Assets: Bitcoin $94,150, Ethereum $3,225, profit-taking, government sales concern
Currencies: USD firm on strong US data and jump in US treasury yields, but JPY even stronger. China moves against CNH weakness risks
Commodities: Crude surges on tightening winter supply amid fresh US sanctions against Russia
Fixed Income: US short yields surged most on Friday’s US data, pricing out further Fed easing.
Macro events: US Federal Budget Balance
Macro data and headlines
The December US jobs report Friday showed a strong labor market, with nonfarm payrolls rising by 256,000 (vs 160,000 est.) and a drop in the unemployment rate to 4.1% (vs 4.2% est). This sparked worries that the Federal Reserve might delay further cuts to the policy rate.
The preliminary University of Michigan sentiment survey for January revealed a mixed economic outlook, with current economic conditions improving slightly to 77.9 from 75.1, while expectations declined to 70.2 from 73.3. Notably, there was a sharp increase in both 1-year and 5-year inflation expectations to 3.3%, from 2.8% and 3.0% in December, respectively, indicating growing consumer anxiety about future price pressures, particularly among lower-income groups.
Canada finished 2024 with its strongest job gains in two years, right before a potential tariff conflict with the US. Employment rose by 91,000 in December, the largest increase since January 2023, lowering the unemployment rate by 0.1 percentage points to 6.7%.
- China’s trade surplus soared to an unprecedented USD 992 billion in 2024, up 21% on the previous year, driven by record exports ahead of Trump’s tariff and weak domestic demand leading to sluggish imports. Exports rose 11% in December to USD 336 billion, the second highest on record, while imports only managed a 1% rise.
Macro events (times in GMT)
US Dec Federal Budget Balance (1900), COT reports from the CFTC covering week to 7 January (2030)
Earnings events
Wednesday: JPMorgan Chase, Wells Fargo, Goldman Sachs, Blackrock, Citigroup
Thursday: Taiwan Semiconductor Manufacturing, Infosys, Bank of America, UnitedHealth, Morgan Stanley
Friday: Schlumberger
Equities
US : US futures are flat early Monday as investors prepare for a busy week of economic data and major earnings, including banks like JPMorgan and Goldman Sachs. On Friday, the Dow fell 1.63%, the S&P 500 dropped 1.54%, and the Nasdaq 100 lost 1.57% as robust December payroll data dampened expectations for further Fed rate cuts. Technology and financials led declines, while energy outperformed. Delta Air Lines surged 8% on earnings, and Walgreens Boots gained 21% after beating expectations and maintaining guidance.
Europe : European stocks ended last week lower, with the STOXX 50 down 0.81% on Friday. A strong US jobs report intensified inflation fears, solidifying expectations of a cautious Fed. Utilities and food & beverage sectors fell sharply, while autos gained 0.5%, led by a 3.7% rise in Mercedes-Benz following Q4 sales results. Ambu A/S soared 17.1% after a strong Q1 outlook, while LVMH and ASML fell amid weaker sentiment. Inflation and tariff uncertainties kept investors cautious.
Asia : Asian markets started the week with losses. Hong Kong’s Hang Seng Index dropped 1.9%, reaching a four-month low, weighed by Wall Street's Friday losses and PBoC’s bond-buying halt. The Shanghai Composite slipped 0.45%, as China's better-than-expected trade balance failed to lift sentiment. Japan’s markets were closed for a holiday. Investors remain focused on US inflation data and China's policy direction amid weakening growth indicators.
Volatility
Volatility remains elevated, with the VIX rising 8.14% to 19.54 on Friday. Options data indicates higher implied moves this week, with expected swings for the S&P 500 at 107.08 points (~1.84%) and the Nasdaq 100 at 467.65 points (~2.24%). Rising expectations for key economic data and earnings season, including banks and major corporates, are contributing to uncertainty. The tech sector, particularly Nvidia, Tesla, and Apple, continues to dominate options activity.
Digital Assets
Bitcoin fell 0.41% to $94,150 early Monday, extending a three-day losing streak as US payroll data reinforced expectations of fewer Fed rate cuts, pressuring risk assets. Reports of potential US government sales of seized Bitcoin also weighed on sentiment, adding supply concerns. Ether dropped 1.29% to $3,225, while Solana slid 2.49% to $183.81. XRP bucked the trend, rising 0.17% to $2.5088. Altcoins mirrored Bitcoin’s weakness, reflecting broader market caution ahead of US inflation data this week.
Fixed Income
US short treasury yields shot higher and the yield curve flattened on the strong US jobs report and high inflation expectations recorded in the University of Michigan sentiment survey. This pushed the anticipated next Fed easing move out to the September-October time frame and with only one further 25 basis point Fed cut fully priced for the 2025 calendar year. Longer US treasury yields rose less, but the 10-year US Treasury benchmark closed above 4.75% for the first time since late 2023.
Global yields moved in sympathy with the US centre of gravity, as the German 2-year benchmark lifted above 2.25% and the 10-year German Bund yield closed at a new cycle high near 2.60%, more than 50 basis points off the early December lows.
Commodities
Crude oil continues its rally, gaining 9% this month, with Brent reaching a five-month high. The surge follows sweeping new U.S. sanctions on Russia's energy sector, which could affect tankers carrying approximately 1.5 million barrels per day of Russian crude—primarily destined for key Asian importers. Refiners in the region are now bracing for significant supply disruptions. This comes as winter demand for heating fuels and diesel remains elevated, amplifying the impact on global energy markets. Additionally, U.S. natural gas prices surged to a two-year high in early trading, driven by forecasts of colder-than-normal temperatures over the next 8 to 14 days.
The grains sector also joined the broad rally on Friday. Soybeans and corn saw significant gains after the USDA projected lower-than-expected U.S. production, sharply reducing projected stock levels for the 2024/25 crop year.
Gold is trading near USD 2,700, maintaining strong demand despite the headwinds of a robust dollar and rising yields. The latter has fueled a growing risk-off sentiment in markets amid concerns over financial stability and heightened volatility ahead of Trump’s return to the White House. Gold's resilience against dollar strength has propelled it to record highs in several currencies, including AUD, CAD, EUR, and GBP.
Currencies
While the US dollar generally rose after the strong jobs data and high inflation expectations registered in the University of Michigan sentiment survey sharply boosted US treasury yields, the Japanese yen managed to rally against the strong greenback, posting impressive gains in the non-US dollar JPY crosses. Japanese markets were closed overnight.
The Chinese yuan firmed slightly after China adopted fresh measures to signal it does not want its currency to weaken after USDCNH has risen to nearly tease the multi year highs of 7.375 touched in both 2022 and 2023. The PBOC and other regulators announced measures allowing firms to borrow more from overseas and tweaked its “macro-prudential parameter” for banks and firms for the first time since mid-2023. It also warned on dealing with any behavior that may disrupt market order in the yuan exchange rate.
