πŸ“ˆ Market View:

πŸ“‰ The US PPI released yesterday showed some weakness. The monthly PPI came in at 0.2% versus an expected 0.4% for the month of December. This would reduce the pressure on possible upward inflation, as the producer price index is considered to be an ante room to inflation data.

πŸ“… Fortunately, today we will solve this conundrum with the release of the US CPI data. A higher reading could trigger heavy selling in Treasuries, with 10-year yields reaching 5%, lifting the dollar and damaging stocks. Traders are reducing expectations for Federal Reserve policy easing, and these movements, which we have been describing since last week, make that clear.

⚠️ Even a better than expected CPI might not be enough to calm the mood, given Friday’s impressive labour market data, only a weaker than expected CPI could stop the trend described in these markets.

🌐 Today we will also get the Eurozone industrial production for November. Fingers crossed, Europe is experiencing a macroeconomic weakness that is making history.

πŸ“‰ British business confidence reached a two-year low at the end of 2024 due to tax concerns following the Labour government’s first budget. The Institute of Chartered Accountants in England and Wales (ICAEW) reported a drop in business morale to 0.2 in the fourth quarter, the lowest since the mini-budget crisis of former Prime Minister Liz Truss. The UK economy experienced a traumatic end to 2024, with slowing domestic activity and aftershocks from the budget causing business confidence to drop.

πŸ’° Markets are pricing in a 40-basis-point reduction in the BoE’s Bank Rate by December 2025, with a 60% chance of a second. The BoE has said measures in Reeves’ October budget will likely add just under 0.5 percentage points to inflation at its peak between 2026 and 2027, causing inflation to take a year longer to return to the 2% target. Two-thirds of British retailers plan to raise prices this year due to higher employer social security costs and households’ high living costs.

πŸ“‰ Fortunately, the inflation rate released a few minutes ago by the UK could ease the situation for UK bonds. The annualised CPI rate for the month of December came in at 2.5%, down from the expected 2.6%. Core inflation also declined to 3.2%, from 3.5% in the previous period and 3.4% expected.

πŸ‡ͺπŸ‡Ί The European Central Bank (ECB) is pushing back against investors who believe that firmer inflation, a strong US job market, and Donald Trump’s economic policies will limit the scope for the ECB to lower interest rates. ECB Governing Council members like Francois Villeroy de Galhau and Yannis Stournaras have reiterated their belief that the deposit rate will fall to around 2% by mid-2025, from 3% currently. While some traders have focused on the recent uptick in inflation, the ECB expects the overall retreat in price gains to progress as anticipated, with less upward pressure from wages in 2025. However, Top hawk Robert Holzmann said the ECB’s next policy decision on January 30 is unclear, indicating that the central bank’s stance remains divided.

πŸ‡ΊπŸ‡Έ President-elect Donald Trump plans to issue executive orders and directives following his inauguration, covering areas like immigration, energy, tariffs, and potential pardons related to the January 6th Capitol attack. He plans to increase federal immigration officers’ latitude to arrest people with no criminal records, send more troops to the U.S.-Mexico border, and restart border wall construction. In the energy sector, Trump is considering executive orders to roll back support for electric vehicles, withdraw from the Paris climate agreement, and revoke Biden’s climate regulations on power plants. The transition team is finalizing specific executive orders and directives for release on day one and subsequent days.

πŸ“ˆ Market View:

πŸ“Š US indices are still awaiting new data. During yesterday’s session, indices managed to recover some of the accumulated losses, boosted by strong labour market data. Today’s inflation data will be key to determine if this move is simply a pullback or a true market recovery.

πŸ“ˆ S&P 500 futures will have to consolidate above 5900 to rule out a continuation of the bearish figure we identified last week and mentioned in the report. For its part, the technology sector is showing signs of further weakness. In the case of the Nasdaq, consolidation above 21,250 would be necessary to eliminate the risk of further declines. However, the current price is around 20,955 points, indicating that it still needs a significant boost to break out of the danger zone.

πŸ‡ΊπŸ‡Έ The dollar retreated yesterday. The dollar index (DXY), which on Monday was trading above 110 points, has cooled to 109.25 today. This has given the EUR/USD a chance to regain ground and approach the 1.03 level. However, if it fails to consolidate above this threshold, it is likely to continue its decline. On the other hand, the US 10-year bond touched the 4.80% level again during yesterday’s session, retreating slightly to the current 4.77% level.

πŸ‡ͺπŸ‡Ί In Europe, the DAX is benefiting from the bullish rebound of the US markets, approaching again its all-time highs. It is currently at 20,425 points, less than 1% off its all-time high, 175 points away from the tops.

πŸ›’ Oil prices seem to be stabilising, with Brent crude oil falling from $81.50 on Monday to $80.35 today.

πŸ… Gold futures, which had fallen more than 2% following Friday’s data, have managed to recover and are back near the $2,700 per ounce level.

β‚Ώ Bitcoin, which during Monday’s session appeared to momentarily lose key support at $92,000, has bounced higher and now stands at $97,470. However, we should keep a close eye on the $92,000 area, as a definitive loss of this level could trigger a severe correction, taking it to levels between $75,000 and $72,000.

🌍 Geopolitics:

πŸ‡©πŸ‡ͺπŸ‡«πŸ‡· Germany and France, two EU members, have suggested lifting some of the sanctions on Syria, after the country has passed to by controlled by ex-terrorist memeber of Islamic army ISIS supported by Israel. This is the good guy, the bad guy was the ex-President Bashar Al-Assad. Now Syrian refugees are safe to return home based on european politicians.

πŸ‡°πŸ‡· South Korea: President Yoon Suk-yeol was taken into custody by the Public Prosecution Service on suspicion of inciting a rebellion and other offences. This is the first time a law enforcement agency has arrested a sitting president in South Korea’s constitutional history.

πŸ‡©πŸ‡ͺ According to Bloomberg sources, Germany is giving its military the power to fire down unidentifiable drones that are allegedly spying on military installations, factories, and other vital infrastructure.

πŸ‡²πŸ‡½ Mexican President Claudia Sheinbaum has proposed an economic plan to decrease imports from China, a move aimed at addressing US President-elect Donald Trump’s criticism of Mexico as a “back door” for Chinese goods. Sheinbaum also defended the USMCA trade pact, which binds Mexico, the US, and Canada in trade relations, and is set for review in 2026.