Summary:

Last Week Review

• GOOD BYE BIDEN, WELCOME TRUMP; AND THE RISE OF CHINA. LAST INFLATION WEEK OF JOE BIDEN’S US PRESIDENTIAL GOVERNMENT closed out a strong week amid optimism over the health of the economy and the direction of interest rates after the US Federal Reserve said they may cut interest rates sooner than expected as inflation is likely to continue to ease, amid resilient US economic data. After US PPI showed a downward trend for Dec, US CPI was released as expected at 2.9% yoy which did heat up slightly compared to Nov at 2.7%. However, CORE CPI which excludes volatile food & energy prices, managed to slightly underperform expectations of 3.3% to 3.2% yoy in Dec, as well as for the monthly position which was 0.1% lower than Nov. Amid reports of a surge in Philadelphia’s Manufacture index and Industrial Production (Dec), as well as US single-family home construction rising to its highest level in 10 months, separate data showed Retail Sales fell in December which is obviously the festive season. Last week’s Initial Jobless Claims were evidence that the heating up of the economy is still under control as jobless claims were released 7k more than forecast & 13k more than the previous week.

• All of the above data eased speculation around Fed interest rates which had implied that it might be necessary to raise rates again, or at least keep rates high for a longer time (= higher for longer). The latest Fed Watch Survey suggests that there are two probable Fed Fund Rate cuts this year, each of 25bps, but they will occur closer to the second half: between the FOMC Meeting in June/July and another one in September. As a result on Friday the 10-year US TREASURY YIELD has fallen from the 14-month high of 4.809% reached early last week.

• Last week was also a solid start to the FINANCIAL REPORT SEASON with results from many of the big banks also helping to lift stocks this week, with the S&P 500 bank index up 7.41% on the week. The S&P 500 and Dow Industrials recorded their biggest weekly percentage gains since early November and the Nasdaq recorded its best since early December. As investment managers see it, the year started on a better footing than what it has been in recent years; however, amidst strong growth in the US national economy; which in turn is driving better corporate earnings, there are still many questions ahead in terms of fiscal and monetary policy and what Trump’s agenda will look like. Over the past week, the DJIA shot up 3.69%, the S&P rallied 2.92% and the Nasdaq appreciated 2.43%.

• Speaking of Inflation, the UK, GERMANY & EUROZONE also reported their December figures last week where all three results were mixed: UK managed to tame CPI on an annualized basis down 0.1% (due to Retail Sales also dropping in December), while Germany & Eurozone actually recorded Inflation heating up 0.4% and 0.2% yoy respectively compared to Nov (in-line with expectations).

• The rest of the world was also in the spotlight when CHINA reported their Q4 GDP at 5.4% yoy which was stronger than the forecast of 5.0% and Q3 of 4.6%. Their Industrial Production also proved to be picking-up to an 8- month high.

• What surprised us was the BANK INDONESIA GOVERNOR’S MEETING aka RDG BI which unexpectedly cut BI7DRR by 25bps to 5.75% when US CPI was not even released yet and RUPIAH was at 16300s/USD. Although this decision is considered by many as translating that Indonesia’s economy is indeed slowing down, it also says that the central bank this time is pro-stability & supports growth. After the decision was made, USD/IDR touched a high of 16,410; almost near the previous high of 16,490 in June last year.

This Week’s Outlook

Global investors will finally see the market impact of US President-elect DONALD TRUMP’s return to the White House. Trump’s inauguration on Monday January 20 as the 47th US president is expected to trigger a series of executive orders ranging from taxes to tariffs, just as the fourth quarter earnings season gets underway. Here’s what market participants are focusing on in terms of what to expect in the markets for this week.

• Investors are watching closely as TRUMP prepares to begin his second term on Monday after indications that he plans to sign a series of executive orders on his first day. US markets will be closed on Monday for Martin Luther King Jr. Day, so any market impact may not be fully felt until Tuesday. Tariff-related movements will be of particular focus; ahead of the inauguration, long-term US bond yields have risen amid expectations that Trump’s proposed tariffs could trigger a resurgence in inflation. Amid one of his executive orders is that Trump has announced his intention to suspend the ban on TikTok. The executive order will also confirm that no company will be held liable for helping to keep TikTok operating before the order was issued.

• Trump urged companies not to allow TikTok to cease operations, emphasizing the importance of the platform for showcasing events such as his inauguration this Monday. His plan has sent US social media stocks like Meta Facebook plummeting. Trump has also expressed his desire for the United States to hold a 50% stake in joint ventures. In a recent meeting with CHINA PRESIDENT XI JIN PING, Trump claimed that the US & CHINA have agreed to maintain global peace at all costs.

• FINANCIAL REPORT season will continue this week, with a series of companies set to report fourth quarter earnings. Key earnings reports will come from streaming giant Netflix, healthcare leader Johnson & Johnson, leading consumer goods company Procter & Gamble, and credit card issuer American Express. Overall, analysts expect S&P 500 companies to report a 10.4% year-on-year increase in fourth-quarter profit, according to LSEG IBES data from January 15, cited by Reuters.

• Global government and business leaders will attend the annual WORLD ECONOMIC FORUM meeting in DAVOS, Switzerland, which begins on Monday. A WEF survey released ahead of the meeting last week showed that armed conflict was the most severe risk to the global economy in 2025, followed by extreme weather. Trump is scheduled to address the meeting via video link on Wednesday. Ukrainian President Volodymyr Zelenskiy will also attend and will deliver a speech on Monday, according to WEF organizers. Among the other global leaders who will attend the Davos meeting are European Central Bank President Christine Lagarde, European Commission President Ursula von der Leyen, British Chancellor Rachel Reeves, and Chinese Vice Premier Ding Xuexiang.

• BANK OF JAPAN will hold its first policy meeting of the year on Thursday and Friday. Ahead of the meeting, BOJ policymakers appeared to be preparing the market for a possible rate hike, with Governor Kazuo Ueda and his deputy Ryozo Himino saying the decision on whether to raise borrowing costs would be a matter of debate. BOJ officials will have several days to consider how Trump’s policies could affect financial markets before spelling out their decision. A rate hike would narrow the gap  between US and Japanese interest rates, which would strengthen the Yen. The Yen has been holding near the 160/USD level, prompting the BOJ to intervene in the foreign exchange market to support the currency.

• BRENT LOW OIL rose 1.3% last week while US WTI jumped 1.7% on the back of sentiment US sanctions on Russia’s energy trade added to concerns over potential supply disruptions. Oil has gained 10% so far this month, amid concerns about the impact of other Western sanctions on Russian crude. Energy traders also weighed the potential implications of Trump’s return to the White House on Monday. Trump’s pick for Treasury Secretary has said he is prepared to impose tougher sanctions on Russian oil. Meanwhile, a blast of Arctic air has blanketed much of the US, causing temperatures to plummet. This is expected to continue until mid-week, which is likely to boost demand for heating oil.

Download full report HERE.