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Daily Macro markets update 23/01/2025

πŸ“ˆ  ATFX Connect-Market Report .

πŸ‡¨πŸ‡³ China announced plans to channel hundreds of billions of yuan annually into shares from state-owned insurers, in the government’s latest effort to support equity markets. Regulators will encourage big state insurers to invest 30% of new annual premiums in A-shares, and mutual funds to increase their A-share holdings’ tradable market value by at least 10% annually over the next three years. These measures are expected to channel “several hundred billion” into onshore stocks every year, helping to consolidate the positive trend of the capital market.

πŸ‡―πŸ‡΅ Japanese exports increased by 2.8% in December, driven by a weaker yen, but volume declined. Exports to China and the U.S. fell by 3% and 2.1%, respectively, due to uncertainty around Trump’s trade policies. Many Japanese companies with U.S. operations are preparing for tariffs by strengthening U.S. manufacturing and procurement, and raising product prices. However, the full impact of tariffs is unlikely to be felt in the first half of the year due to regulatory processes.

🏦 The Japanese Bank of Japan (BOJ) is confident that conditions for another interest rate increase are in place due to moderate economic expansion and inflation holding above the 2% target. The BOJ is likely to raise its short-term policy target to 0.5% on Friday, as firms are expected to offer pay hikes for a third consecutive year in annual wage negotiations. A global share rally has eased concerns about Trump’s tariff threats, increasing the chance of a rate hike. The BOJ will release a quarterly outlook report with revised growth and inflation forecasts, with Governor Ueda’s view on Japan’s neutral rate providing key insights.

πŸ—£οΈ For weeks, we have insisted in these market reports that Trump’s tariffs were a political, not a revenue-raising, tool. J. Dimon’s words on CNBC yesterday seem to be along the same lines as ours.

πŸ’Ό JPMorgan Chase CEO Jamie Dimon believes that a small inflation increase due to the Trump administration’s tariff plans could be beneficial if it addresses national security concerns. However, Dimon emphasized the importance of how the Trump administration uses tariffs, whether to address unfair trade practices or state-owned subsidies. Trump signed an executive order titled “America First Trade Policy” to investigate annual trade deficits and make recommendations for action, including tariffs. “I look at tariffs, they are an economic tool, that’s it. They’re an economic weapon, depending on how you use it and why you use it and stuff like that,” Dimon said.

πŸ‡ͺπŸ‡Ί European Central Bank President Christine Lagarde has urged Europe to “be prepared” and anticipate potential trade tariffs from newly inaugurated U.S. President Donald Trump. Lagarde said the fact that Trump had not imposed blanket tariffs on the first day of his presidency was a “very smart approach” as “blanket tariffs are not necessarily giving you the results that you expect.” Trump has threatened to impose duties on EU goods, telling reporters that the EU has been “very, very bad to us.”

πŸ‡¬πŸ‡§ UK debt markets are showing signs of cracks in the reserve currency status, with gilt yields rising despite interest rate cuts and the pound falling. This change in market dynamics may indicate that the UK’s safe-haven status is becoming less assured, potentially impacting its AA rating. Gilts now tend to get sold off along with everything else when trouble hits, rather than attracting risk-adverse investors looking for a safe haven Scope Ratings warns that if bond sell-offs, reminiscent of the mini-budget crisis, become more frequent, it could suggest the UK’s safe-haven status is becoming less assured. The UK’s debt has surged to nearly 100% of GDP, and any significant weakening of the fiscal trajectory could affect its credit rating.

πŸ“Š Market Review:

πŸ’Ή US futures are on the verge of new all-time highs. The S&P 500 is currently trading at 6,113 points, although it reached 6,135 points a few hours ago. Nasdaq 100 futures momentarily managed to break above 22,000 points, but are currently trading at 21,945 points.

πŸ’΅ The dollar has been strengthening in recent hours. Yesterday, we noted that the dollar index DXY could rally towards 109 and then pull back, forming a possible bearish Shoulder-Head-Shoulder (SHS) figure. However, there is still a long way to go before this is confirmed. Elsewhere, EUR/USD managed to break above the 1.0450 level, but has since retreated and is now trading at 1.0395.

πŸ‡©πŸ‡ͺ In Europe, DAX 40 futures broke above the 21,450 level yesterday, but have since retreated to the current 21,380 level. The dissonance between this index and the economic situation in Europe is historic.

πŸ›’οΈ Crude oil continues its downward trend. During yesterday’s session, it experienced some rallies that took Brent crude oil close to 80 dollars, although it subsequently fell back and continues its downward trend, currently trading at 78.60 dollars.

πŸ₯‡ Gold, meanwhile, approached 2,775 dollars per ounce yesterday, marking a new annual high. However, it has retreated slightly and is currently trading at $2,761 per ounce.

πŸ’° Bitcoin again pushed higher during yesterday’s session, surpassing $107,000. However, it has since retreated and now stands at $102,400.

🌍 Geopolitics:

πŸ‡ΊπŸ‡Έ US President Donald Trump warned Russia of high taxes, penalties, and sanctions if President Vladimir Putin does not end the Ukraine war. Russian Ambassador to the UN, Dimitri Polyanskiy, emphasized that Moscow needs to know what Trump wants to do to detain the war before accepting it. Polyanskiy emphasized that the question is not just ending the war but addressing the deep causes of Ukraine’s crisis. Trump promised resolve Ukraine’s war within a day or 24 hours, but has not yet set concrete plans. Polyanskiy expressed openness to know what deal Trump would be proposing to solve the conflict, as Russia has been the most sanctioned country in the world and has developed solutions to circumvent existing sanctions.

πŸ‡ͺπŸ‡Έ Spanish Prime Minister Pedro Sanchez proposed ending anonymity for social media users and forcing tech tycoons to provide accountability if their platforms “poison society”. However, he bragged about his government’s unfounded support and funding for another of those tycoons that politically influence society, but in this case, are favourable to his political agenda, such as the Bill Gates Foundation. Sanchez proposed that all social media users must link their accounts to a form of European digital identity wallet to hold potential criminals responsible. Regulators should be able to “force open the black box of social media algorithms” and “tycoons should be held responsible if their algorithms poison our society,” according to Sanchez.

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