Week Ahead
Geopolitical tensions are likely to keep markets on their toes following the US attack on Venezuela. At the time of writing, equity markets appear largely unfazed; US Treasury yields are marginally lower, while gold and the dollar are firmer and oil is on the back foot.
Later today, attention turns to the US ISM manufacturing index and vehicle sales. Germany and France CPI prints will be closely watched on Tuesday, together with remarks from ECB officials Galhau and Cipollone and, later, Fed’s Barkin. Wednesday brings Eurozone CPI as well as US factory orders, the ISM services index, ADP employment change and JOLTS job openings. On Thursday, Eurozone PPI, consumer and economic confidence, and unemployment figures are due, alongside Germany factory orders and US wholesale inventories, initial jobless claims and trade data. ECB Vice President Guindos will also speak, and the ECB’s 1-year and 3-year CPI expectations will be closely monitored.
Friday begins with China’s CPI and PPI figures, followed by the US employment report, University of Michigan sentiment survey and housing starts. Nonfarm payrolls are projected to rise by just 59k in December, coupled with a sizable -105k revision to previous figures. As a result, 2025 is shaping up to be one of the weakest years for job growth since 2009, despite an expected slight decline in the unemployment rate to 4.5%.
During the holiday-shortened week, the 10-year UST yield rose 6bps to 4.19%, while the S&P 500 fell 1.03%. The dollar remained bid, with the DXY up 0.41%. Brent crude gained 0.18%, closing at $60.75pb.
Some dovish comments came from Fed’s Paulson, who expressed optimism that inflation is cooling and the labour market is stabilising. With growth projected around 2% this year, she suggested that “modest further adjustments” to interest rates could be warranted later in the year if these trends persist.
Elsewhere, while China’s elderly consumers (or “silver economy”) continue to provide an important stabiliser for domestic demand, a meaningful lift to the country’s growth ceiling still requires a recovery in youth employment and high-tech industrial expansion. Recent data point to a fragile but promising turnaround, with the manufacturing PMI returning to expansion at 50.1 in December, driven by large firms and high-tech sectors, despite persistent weakness among smaller enterprises. To sustain momentum, Beijing is pivoting towards a proactive 2026 fiscal stance that places consumption on equal footing with investment, supported by a projected 4.0% deficit and front-loaded bond issuance to stimulate domestic demand. Meanwhile, supported by a stabilising economy and the Fed’s rate-cutting cycle, the renminbi has entered 2026 with notable strength, recently breaking below the key psychological level of 7.00 per US dollar for the first time in over 18 months.
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