Global Market Quick Take: Europe – 6 January 2025
Key points
Equities: Tech-led US rally, European decline on weak data, mixed Asian performance.
Volatility: VIX drops as investor sentiment improves, focus on next week’s CPI data
Currencies: USD strength has ebbed since the big surge on the first trading day of 2025, as US 10y treasury yields pinned near cycle highs.
Commodities: Gold and crude slip with USD in focus. Extreme price swings in natural gas.
Fixed Income: US Treasuries hold firm amid inflation risks ahead of a busy auction week
Macro events: Dec PMIs from France, Germany, Euro Zone, UK and the U.S.
Macro data and headlines
Canada’s prime minister Justin Trudeau may step down as leader of the Liberal party this week, according to Canadian newspaper Globe and Mail. This would set in motion a contest for his replacement and new elections
China's services sector saw fastest growth since May; Caixin PMI rose to 52.2 in December from 51.5 in November, beating the 51.4 forecast. However, new export business fell for the first time since August 2023, indicating cooling foreign demand.
S&P Global Australia Composite PMI rose to 50.2 in December from 49.9 in November, with services growing and manufacturing declining. Employment fell, costs rose, and business confidence improved.
ISM Manufacturing PMI reported Friday, rose to 49.3 in December, above the 48.2 forecast, and highest since March, supported by a pick-up in demand as new orders rose more than 2 points to 52.5 matching the highest since March 2022. US economic data strength underscore the challenge traders and investors face in deciphering the path ahead for US interest rates after Fed Chair Jerome Powell’s hawkish pivot in December
Macro events (times in GMT)
Final Dec. PMI for France (0850), Germany (0855), and Eurozone (0900), UK Dec PMI (0930), German Dec CPI (1300), US Dec PMI (1445)
Earnings events
- Friday: Constellation Brands, Delta Airlines, Walgreens Boots
Equities
US: US stocks posted strong gains on Friday, with the S&P 500 climbing 1.26% to 5,942.47 and the Nasdaq 100 advancing 1.67% to 21,326.16, fueled by a tech-led rally. The Dow Jones added 339 points (+0.80%) to close at 42,732.13, snapping a multi-day losing streak. Nvidia (+4.4%) and Tesla (+5.2%) powered the Nasdaq higher, while consumer discretionary and communication services led gains in the S&P 500. Market sentiment improved as investors focused on growth-oriented sectors and positioned ahead of key inflation data due next week.
Europe: European stocks closed lower on Friday, with the STOXX 600 declining 0.49% to 508.02 and the Euro STOXX 50 dropping 0.94% to 4,871.46. Weak German industrial orders, which fell 2.7% month-over-month, weighed on sentiment, particularly in the industrial and auto sectors. BMW (-1.2%) and Siemens (-1.0%) were among the notable laggards. Retailers also struggled, with Adidas (-1.5%) under pressure amid slowing consumer demand forecasts. Banking stocks offered some resilience, with Santander and ING posting modest gains. Investors remain focused on upcoming Eurozone CPI data and the ECB’s meeting minutes for guidance on monetary policy.
Asia: Asian markets saw mixed performance on Friday. The Hang Seng Index fell 0.49% to 19,662.77, dragged lower by Chinese tech stocks amid ongoing concerns about weak consumer demand and muted economic policy updates from Beijing. In Japan, the Nikkei 225 rose 0.3%, supported by export-oriented sectors as the yen weakened to a one-month low, benefiting automakers like Toyota (+0.6%). South Korea’s KOSPI climbed 0.8%, led by gains in semiconductor stocks as SK Hynix and Samsung rebounded after a challenging week. Investors are cautiously optimistic as they await further signals on regional monetary policy and global inflation trends.
Volatility
Volatility eased on Friday, with the VIX dropping 10.04% to close at 16.13, reflecting improved investor sentiment amid broad equity gains. VIX futures remained steady at 16.80 (+0.68%), indicating subdued expectations for short-term market turbulence. Weekly expected moves for the S&P 500 stand at 80.43 points (~1.35%), while the Nasdaq 100 shows a wider range of 390.38 points (~1.83%), slightly higher than last week's levels. Notable options activity included Nvidia, Tesla, and MicroStrategy, driven by heightened interest in growth stocks. The market focus now shifts to next week’s CPI data, a potential driver of near-term volatility.
Fixed Income
US Treasury yields held firm amid economic data strength, and ahead of this week's busy schedule of debt issuances, including three coupon auctions and a significant corporate bond issuance. Treasury auctions start Monday with 3-year notes, followed by 10-year notes on Tuesday and 30-year bonds on Wednesday. Key level to watch in US 10-year Notes remain the May 2024 high at 4.64%, a break above which may signal an extension towards 4.75%.
Commodities
Traders remain cautiously bullish on gold and silver in 2025, driven by multiple political uncertainties, financial stability concerns, and strong central bank demand. However, uncertainty regarding the near-term trajectory of US short-term rates and a surging dollar, which rose 7% during Q4-2024, are likely to create a bumpy and volatile path towards our USD 3000 target.
Crude oil saw a strong rise last week, supported by robust Asian demand, lower US inventories, and a technical breakout that led to fresh momentum buying in both Brent and WTI. Nevertheless, the upside appears limited due to demand uncertainties and elevated OPEC+ spare capacity.
US natural gas futures have been extremely volatile, dropping 8.4% on Friday following a smaller-than-expected inventory draw, only to rally 7% overnight amid an ongoing cold weather scare. This volatility, similar to gas prices in Europe and Asia, underscores how unpredictable, or changing weather developments during peak heating demand season can impact prices.
A stronger-for-longer US dollar, not least against the Chinese renminbi continues to weigh on industrial metal prices, leading copper to once again testing USD 4 support last week before staging a bounce back amid focus on Chinese demand and the potential for additional stimulus measures.
Currencies
The US dollar surged on the first trading day of 2025, but edged back lower Friday and in early trading in Asia to start the week. Traders will eye US treasury yields as a coincident indicator for the US dollar, as the 10-year benchmark yield trades near the recent cycle high above 4.60%. Key resistance in EURUSD ahead of 1.0335-45, the lows before the breakdown.
The Chinese renminbi has traded near the critical 7.3750 threshold in USDCNH, a twice-touched level (once in 2022 and once in 2023) that will be closely watched as US president Trump is set to take office later this month and as the market awaits the nature of the US-China relationship under the new Trump administration after the incoming president has both threatened massive new tariffs and suggested that the US and China are a kind of “G2” that can solve all of the world’s problems.
