The Week Ahead
During this week’s Lunar New Year holiday in Asia (starting Tue), the FOMC (Tue-Wed) and ECB (Thu) meetings, US PCE (Fri) and key tech earnings reports will garner interest. Monday kicks-off with Germany's IFO Business Climate index and US home sales data and Chicago Fed National Activity Index, accompanied by speeches from the ECB’s Lagarde, Holzmann, Kazimir and Vujcic. US consumer confidence and durable goods and chatter from the ECB’s Galhau will be of interest on Tuesday. Wednesday marks the Fed’s rate decision. The central bank is expected to keep pat on rates, with market attention fixed on Powell's presser and major tech earnings from Tesla, Microsoft, Meta, and ASML. A busy Thursday sees the release of eurozone consumer confidence, unemployment and GDP, along with US GDP prints, and Apple, Deutsche Bank and Shell earnings. The ECB rate decision is expected to result in a cut, with focus shifting to Lagarde's new conference. A busy Friday sees France and German CPI, and US personal income and spending, PCE inflation, and employment cost index readings. We also have Samsung earnings and the ECB’s inflation expectations report.
Last week the yield on the 10-year UST was marginally unchanged over the week, at 4.62%. Meanwhile, the S&P Index hit fresh highs on Friday, closing 1.74% higher on the week. The dollar lost ground, the DXY Index fell 1.74%, driven by a pullback in the “Trump trade” and then the weaker-than-expected US prelim. Services PMI. Brent crude also suffered, falling 2.83% to $78.50pb, amid Trump’s energy policy rhetoric, and concerns over global growth given the evolving US trade tariff picture.
This morning’s data showed China's factory activity unexpectedly contracted in January 2025, with the official manufacturing PMI falling to 49.1, into contraction after three consecutive months of growth. This decline, partly attributed to seasonal factors ahead of the Lunar New Year, was accompanied by a notable slowdown in the non-manufacturing sector, where the PMI fell to 50.2 from 52.2 in the previous month. Last week China's equity markets gained momentum before the Chinese New Year, with all local governments signalling GDP targets above 5% for 2025. While the country faces economic challenges, like bonus cuts across sectors, it is showing significant progress in technology, particularly in AI (with DeepSeek) and military development.
Elsewhere, the Bank of Japan (BOJ) raised its short-term policy rate by 25bps to 0.5%, marking its highest level in 17 years, following accelerated consumer price increases of 3% in December 2024. This decision, which represents the BoJ's first rate hike since July 2024, was carefully signalled in advance by Governor Kazuo Ueda to avoid market disruption, unlike the previous hike that triggered a global stock market sell-off. The move is part of the central bank's broader strategy to gradually increase rates to around 1%, a level considered neutral for the economy and provides more flexibility to cut rates if needed in the future.
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