Welcome to this week’s Market Roundup, your one-stop destination for the latest global market trends, key economic insights, and financial news. As markets kicked off the new year, inflation concerns, surging bond yields, and mixed economic data shaped the global landscape. Let’s dive into last week’s highlights and what’s ahead.
U.S. Markets: Inflation Angst and Strong Jobs Data Weigh on Markets
U.S. equities fell last week, with the S&P 500 losing 1.94% and the Nasdaq Composite down 2.34%, marking its sharpest weekly drop since mid-November. Small-cap stocks underperformed, pushing the Russell 2000 into correction territory, while value stocks fared better than growth stocks.
Key drivers:
Inflation Worries: Hawkish Federal Reserve minutes highlighted concerns about persistent inflation, with rates likely to remain "higher for longer."
Jobs Report: The December jobs report exceeded expectations, showing 256,000 new jobs and 3.9% wage growth year-on-year, fueling speculation that the Fed will moderate its pace of rate cuts.
Treasury Yields: The 10-year yield surged to 4.78%, its highest in over a year, reinforcing expectations of limited rate cuts in 2025.
Europe: Resilient Markets Amid Inflation and Rate Optimism
European stocks advanced, with the STOXX Europe 600 gaining 0.65%. Italy’s FTSE MIB led with a 2.82% gain, followed by France’s CAC 40 (+2.04%) and Germany’s DAX (+1.55%). The UK’s FTSE 100 posted a modest 0.30% gain.
Regional themes:
Inflation Trends: Eurozone inflation ticked up to 2.4% in December, driven by rising energy and service costs. However, the ECB maintained its dovish stance, emphasizing progress toward its 2% target.
UK Gilt Yields: Yields on UK gilts surged to 4.8%, the highest since 2008, amid concerns over fiscal policies and borrowing.
Japan: Rising Yields and Yen Weakness Amid BoJ Speculation
Japanese equities edged lower, with the Nikkei 225 losing 0.30% and the TOPIX Index falling 2.50%. The yen weakened to 158.05 per USD, reflecting the widening U.S.-Japan yield differential and speculation about the Bank of Japan’s (BoJ) next moves.
Economic insights:
Yields: The 10-year Japanese government bond (JGB) yield climbed to 1.19%, its highest since 2011, tracking U.S. Treasury yields higher.
BoJ Outlook: Governor Kazuo Ueda signaled a tightening bias, contingent on improving economic and wage conditions. However, market speculation suggests a potential delay in the BoJ’s next rate hike to March or April.
Wages: Real wage growth fell 0.3% year-on-year in November, the fourth consecutive month of negative growth, dampening consumer spending prospects.
China: Deflationary Pressures Persist Despite Stimulus Efforts
Chinese equities struggled, with the Shanghai Composite losing 1.34% and the Hang Seng Index falling 3.52%. Economic data continued to highlight deflationary pressures.
Key highlights:
Inflation: December’s consumer price index (CPI) rose just 0.1% year-on-year, while the producer price index (PPI) contracted 2.3%, marking 27 consecutive months of factory gate price deflation.
Monetary Policy: The People’s Bank of China reiterated its commitment to a moderately loose monetary policy, pledging support for key sectors like technology and pensions.
Services Activity: The Caixin/S&P Global services index climbed to 52.2, its highest since May, signaling stabilization in non-manufacturing activity.
What to Watch This Week
United States:
December CPI (Wednesday): Markets expect headline inflation to rise 2.9% year-on-year, with core CPI increasing 3.3%.
Retail Sales (Thursday): Forecasts suggest a 0.6% month-on-month increase, providing insight into consumer spending trends.
Eurozone & UK:
ECB Minutes (Thursday): Insights into the ECB’s December policy meeting will shape inflation and rate expectations.
Industrial Production (Wednesday): Eurozone November data will provide a snapshot of manufacturing health.
Japan:
Business Sentiment (Thursday): Large manufacturers’ confidence will offer clues about economic momentum.
China:
Q4 Economic Growth (Friday): Key GDP figures will reveal how deflation and stimulus measures have impacted China’s recovery.
Conclusion
Last week underscored the challenges and opportunities in navigating inflation, bond yields, and monetary policies. With pivotal economic updates ahead, global markets remain at a crossroads. Stay tuned for more insights in next week’s Market Roundup.
FAQs
Why did U.S. markets fall last week?
Rising bond yields and strong jobs data fueled concerns about persistent inflation and slower rate cuts.Why are European markets outperforming?
Optimism over inflation progress and resilient economic indicators bolstered European markets, despite regional risks.What’s driving Japan’s market movements?
Rising yields, yen weakness, and speculation over the BoJ’s rate trajectory have shaped Japanese market dynamics.Why is China struggling with deflation?
Weak consumer and factory gate prices reflect ongoing economic pressures, despite Beijing’s fiscal and monetary support.What’s the importance of this week’s CPI data?
CPI figures in the U.S., Eurozone, and China will shape monetary policy expectations and provide critical insights into inflation trends.
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