The new year has begun, and with it comes a wave of economic data from countries around the world. Eurozone inflation has picked up modestly, while price pressures have eased in Switzerland. Developments in Canada made headlines last week, with Prime Minister Justin Trudeau stepping down as leader of the Liberal Party. In Latin America, inflation data in Mexico and Brazil were mixed.

Global financial markets have been volatile at the start of the year, with U.S. Treasury yields moving higher as investors weigh the pace of Fed easing. The shift has reverberated in Asia, where slowing growth in China has dampened risk sentiment and pushed the MSCI China Index into a bear market.

Several Fed officials confirmed last week that the Fed is likely to keep interest rates at current levels for a long time, only lowering them again if inflation cools significantly. The Fed is concerned about the incoming administration. The combination of the United States' growing fiscal deficit and a strong consumer could lead to "higher interest rates over the next five to ten years." Future market direction will be further guided by economic data and corporate earnings reports, especially the bank earnings season, which begins this week.

U.S. stocks fell across the board last week as strong employment data stoked investor concerns about inflation and persistently high interest rates. The S&P 500 fell 1.54% to 5,827.04; the Dow Jones Industrial Average fell 1.64% to 41,938.45; and the Nasdaq Composite fell 1.63% to 19,161.63. This round of declines made the three major stock indexes record the second consecutive week of decline in the new year. Future market trends will be further guided by economic data and corporate earnings reports, especially the bank earnings season that began this week.

Although the non-farm data was better than expected, the impact on gold prices was limited. Gold prices rebounded last week and achieved a weekly increase of 2.0%. It was reported at $2,690.00 per ounce; gold prices hit a one-month high of 2,698.00 during the session and then fell back to around $2,663.00 per ounce. The uncertainty of the new Trump administration's policies has increased the safe-haven appeal, even if the stronger-than-expected US employment data reinforces the expectation that the Federal Reserve may not cut interest rates drastically this year.

Silver prices last week traded above $30,000 for five sessions, and hit a near one-month high near $30,480. As a safe-haven asset, precious metal silver has found support amid uncertainty about inflation and potential Trump administration tariffs. However, as long-term U.S. bond yields continue to climb amid high supply, upside for non-yielding metals could be limited.

The dollar surged last week, rising to 109.97, the highest since November 2022, and rising for the sixth straight week. This is the longest streak of weekly gains since 2023, when it rose for 11 consecutive weeks. Earlier data showed that the U.S. created more jobs than expected in December, reinforcing expectations that the Federal Reserve will pause its rate-cutting cycle at its policy meeting later this month. The biggest risk to the dollar's bullish view is if participants seek to take profits and reduce risk before Trump's inauguration early next week

The dollar rose to its highest level since July against the yen before turning lower. The dollar has risen against the yen in five of the past six weeks. The dollar fell against the yen late Friday, trading at 157.81 yen. The euro fell to its lowest level against the dollar since November 2022. It closed at $1.0244 before the weekend, falling for the second consecutive week. Quite a number of foreign exchange forecasters expect the euro to reach parity with the dollar in 2025. The pound also performed poorly, hitting its lowest level since November 2023 at 1.2191 against the dollar, and closing at $1.2208 in New York. Due to the sell-off of British government bonds and concerns about the UK government's fiscal situation. The Australian dollar/dollar continued its weak sideways trend and fell below the lowest level of 0.6170 since October 2022 to 0.6138. And it is likely to continue the established downward trend against the backdrop of a bullish dollar over the past three months or so.

Oil prices rose more than 3% last week to their highest level in three months as traders braced for supply disruptions from the most extensive U.S. sanctions on Russian oil and gas revenues. The Biden administration on Friday announced a new round of sanctions on Russian oil producers, tankers, intermediaries, traders and ports, aimed at hitting every link in Moscow's oil production and distribution chain. Brent crude futures rose $2.73, or 3.54%, to $79.65 a barrel, after breaking through $80 for the first time since October 7. U.S. WTI spot crude rose $2.33, or 3.17%, to $75.90 a barrel, also a three-month high.

Bitcoin staged a "fall first and then rise" violent shock before the weekend, first hitting a low of $91,208 and then pulling up to $94,500. The U.S. government has obtained approval to liquidate 69,370 bitcoins seized from the Silk Road market, worth about $6.5 billion.

Bond yields climbed sharply after the jobs report. The 10-year Treasury yield jumped to 4.77%, the highest since the end of 2023; the two-year Treasury yield also rose to 4.39%. Higher yields put additional pressure on the stock market.

Outlook for this week:

The strong non-farm data ruled out the possibility of a rate cut at the Fed's next meeting and triggered a market sell-off. The US inflation data will be the focus of the market, which may cause investors to further reduce their expectations of the Fed's rate cut. After several years of outstanding performance, the US stock market has stumbled at the beginning of 2025. Rising inflation is seen as one of the main risks facing the stock market. The Federal Reserve has withdrawn its expected rate cut plan.

The US CPI report released on Wednesday will have a major impact on the market. If inflation accelerates again, it is very likely to trigger a new round of sell-offs. Recently, US Treasury yields have been rising, and people expect the 10-year Treasury yield to reach 5%. Market observers believe that the steepening of the US Treasury yield curve has caused trouble for the stock market. In an environment where stocks and bonds are correlated, concerns about further increases in bond yields pose a significant threat to stocks.

U.S. President-elect Trump will take office on January 20, and investors need to pay close attention to his policy statements, as these changes will have a profound impact on the global economy and financial markets.

Meanwhile, UK government bond yields rose to their highest level since 1998 this week, and the pound continued to fall against the dollar, as investors are concerned about the UK government's growing borrowing and overall sluggish economic performance.

As global markets continue to be affected by both macroeconomic factors and the geopolitical background, investors' attention is quickly turning to economic data and corporate earnings reports to be released this week. Driven by the risk of stagflation in the UK, US inflation data, and dynamics in European and American stock markets, the market may experience a new round of volatility. Here are several major risk events that the market should focus on this week.

The UK's stagflation dilemma tests market tolerance

The UK economy is stumbling, while inflation has climbed to an eight-month high. This stagflation environment puts the Bank of England in a policy dilemma. On the one hand, higher inflation makes it more difficult to cut interest rates; on the other hand, the market expects that the UK base rate may be lowered from 4.75% to 4.25% this year.

The Consumer Price Index (CPI) to be released on January 15 will be an important reference for the market to interpret the next move of the Bank of England. The risk of monetary easing has further increased. Against this background, the pound and the UK government bond yields may continue to maintain high volatility. In addition, the UK 30-year government bond yield has climbed to a 25-year high, becoming one of the centers of the global market downturn. The Chancellor of the Exchequer may need to take further fiscal tightening measures, but this may put additional pressure on economic growth, thereby exacerbating the risk of stagflation. For futures traders, the linkage between the pound exchange rate and the government bond market will be an important observation point.

US CPI data and Fed expectations confrontation

The US CPI data for December, which will be released on January 17, is the highlight of this week. According to market forecasts, the CPI may increase by 0.3% month-on-month, roughly the same as the previous month. Although the Fed expected only two rate cuts this year at its December meeting, the latest inflation data may further affect the market's pricing of the rate cut path.

It is worth noting that the recent rapid rise in US Treasury yields has already impacted the prices of multiple asset classes. Higher inflation readings may reinforce the need for the Fed to maintain a tight policy, thereby pushing up long-term bond yields. Against this backdrop, asset prices linked to US Treasury yields in the futures market may see significant volatility.

In addition, due to energy price volatility and the persistence of service inflation, core inflation trends remain a focus of investors. Traders need to pay attention to the cross-influence of energy market performance and CPI data to adjust their expectations for the Fed's policy path.

European IPO boom and risk sentiment adjustment

Despite multiple pressures on European and American markets, European corporate IPO activities have been active in early 2025. Spanish travel technology company HBX Group expects to complete a 1 billion euro stock offering next week, and other large IPO projects are also in preparation. The active performance of European stock markets may ease the selling pressure of some risky assets, but it is also necessary to pay attention to whether the overall market sentiment will be under pressure due to macroeconomic uncertainty.

Summary:

On the whole, the focus of the market this week is on the guidance of the economic data of the UK and the US on the policy path. The risk of stagflation may increase the volatility of the UK market, while the US inflation data will directly affect the bond yields and the Fed's policy expectations. In addition, the opening of the banking industry earnings season may reactivate the market's attention to economic fundamentals and drive some sectors to perform beyond expectations.

Under the interweaving of multiple factors, short-term market fluctuations may be difficult to avoid, but for futures traders, this is the window period for finding trading opportunities. In the operation, it is necessary to pay attention to the time nodes of major risk events and flexibly adjust positions to deal with potential market shocks.

Important events and economic data overview this week: (Sydney Time)

Important events:

Tuesday (January 14): Bank of Japan Deputy Governor Ryozo Himino spoke to local business leaders in Yokohama, followed by a press conference

Wednesday (January 15): EIA releases monthly short-term energy outlook report

Thursday (January 16): Federal Reserve releases Beige Book on economic conditions

Economic data overview:

Monday (January 13): Australia's December AIG Manufacturing Performance Index; UK November industrial output monthly/annual rate; Canada's December leading indicator monthly rate (%)

Tuesday (January 14): Japan's November trade balance; US December PPI annual rate; US December core PPI annual rate

Wednesday (January 15): UK December CPI annual rate; UK December Retail Price Index annual rate; UK December unadjusted input PPI annual rate; US December CPI annual rate unadjusted; US January New York Fed manufacturing index; US EIA crude oil inventory change for the week ending January 10 (10,000 barrels)

Thursday (January 16): Australia December seasonally adjusted unemployment rate; Australia December employment population change; UK November GDP monthly rate; Eurozone November seasonally adjusted trade account; US December import price index monthly/annual rate; US January Philadelphia Fed manufacturing index; US December retail sales monthly/annual rate

Friday (January 17): Eurozone December reconciled CPI annual rate-unadjusted final value; US December initial value of annualized total number of building permits; US December industrial output monthly rate

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