πŸ“Š Market Report.

πŸ“ˆ Yesterday’s inflation data came out in line with expectations, even core inflation slightly below expectations. The US consumer price index (CPI) rose by 0.4% in December, the highest in nine months, driven by higher energy costs. The 12-month CPI advanced 2.9%, the largest rise since July. However, there were some hopeful signs, with the core CPI subsiding after four straight months. The data indicates sticky inflation, particularly in the service sector and housing, which is not well aligned with near-term rate cuts.

🏠 The average 30-year fixed-rate mortgage contract rate in the U.S. reached 7.09%, the highest level in eight months, marking a full percentage point increase since September when the Federal Reserve began cutting borrowing costs. Despite the Fed’s policy rate being a full percentage point lower than in September, mortgage rates have gone in the opposite direction, tracking a surge in Treasury yields.. This is causing pressure on potential homebuyers, who are already facing rising house prices and limited supply, further affecting the U.S. housing market.

πŸ‡¬πŸ‡§ In UK, despite the slightly softer inflation report, Finance Minister Rachel Reeves acknowledged that “there is still work to be done” to address the persistent inflation pressure. The BoE has said Britain’s persistent inflation pressure means it will move only gradually with reducing borrowing costs, despite signs of the economy losing momentum. The slightly softer inflation data has provided some relief to policymakers and Treasury officials, as it could allow the BoE to continue its gradual easing cycle and potentially reduce the pressure on Finance Minister Reeves to meet her budget rules. However, the path ahead for inflation remains uncertain, and the BoE is likely to maintain a cautious approach to further rate cuts.

πŸ“‰ The British economy does not seem to show any signs of improvement either. Monthly GDP growth is below expectations, at 0.1 versus 0.2%, but improving from the previous period. However, industrial production contracted by -0.4% and the UK trade balance fell below expectations.

🚒 Remember when we mentioned that China’s latest trade balance data showed a considerable rebound, but we said it was due to premature shipment of goods for the coming months in the face of Trump’s possible upcoming tariffs? Well we have the same effect now on US imports: U.S. imports from China finished 2024 strong, as companies stockpiled shipments of apparel, toys, furniture, and electronics ahead of President-elect Donald Trump’s plan to impose new tariffs that could revive a trade war. U.S. seaports handled a 14.5% year-over-year increase in 40-foot containers of goods from China in December, capping a year when imports of various products from China rose 15%. Several categories of U.S. imports from all geographic sources, such as textiles, apparel, toys, home furnishings, and consumer electronics, posted meaningful gains in the fourth quarter. Companies like Helen of Troy and MSC Industrial Direct have been building strategic inventories and developing promotional campaigns for U.S.-made goods to reduce their exposure to potential new tariffs. Trump has also threatened to impose tariffs on goods from other countries, including Mexico and Canada, further complicating the trade landscape.

πŸ‡©πŸ‡ͺ Germany’s economy shrank for a second consecutive year in 2024, with GDP falling by 0.2% after a 0.3% drop in 2023. This is only the second time since 1950 that Germany has experienced two years of economic contraction in a row. The struggles of the continent’s largest economy are a major theme in the upcoming snap elections in Germany. German economy issue also include weak global demand, manufacturing malaise (especially in the auto sector), lingering effects of the energy crisis, bureaucratic red tape, and a shortage of skilled workers. Germany is not alone in Europe’s economic struggles, as France is also grappling with fiscal and political upheaval that will require years of belt-tightening, likely weighing on growth. If European Central Bank continue the easing of monetary policy, it could provide some support to Germany.

πŸ’Ή German inflation, released a few minutes ago, came in above expectations, with a monthly increase of 0.5% versus 0.4% expected and -0.2% in the previous period. As feared, there seems to be an increasingly clear trend change.

🏦 ECB Chief Economist Philip Lane said the bank is not yet in a position to make a firm promise about the future path of interest rates, given the high level of uncertainty. ECB Vice President Luis de Guindos was somewhat more committal, and said they expect to continue reducing the restrictiveness of monetary policy. However, de Guindos also acknowledged that the outlook is clouded by even higher uncertainty, warranting prudence from the ECB. Lane argued that households are likely to reduce their exceptionally high savings rate, but only moderately, as improved real incomes and lower bank deposit rates boost spending, though geopolitical tensions could still weigh on sentiment.

πŸ“ˆ Market View:

πŸ“Š S&P 500 futures are moving away from danger zones and are currently trading back above 6,000 points. Inflation data released yesterday have reassured a market that feared a worsening of inflation rates. Although inflation continues to rise, it is in line with expectations. In the case of Nasdaq futures, rallies are also being recorded, taking it close to 21,500 points. However, as mentioned earlier, its chart structure remains weaker than that of the S&P 500.

πŸ’΅ The dollar retreated after the inflation data, pushing the DXY index down to 108.60, but later recovered to the current 109. The US 10-year bond, which had reached a worrying rate of return of 4.80%, retreated significantly to the current 4.65%. The EUR/USD also showed a recovery, briefly rising above the 1.0350 level, although it has retreated again and now seems to be losing the 1.03 level.

πŸ” In contrast, Germany hit new all-time highs, with its futures contracts surpassing the 20,800 level a few minutes ago. However, the country’s economic data is increasingly negative, a dissonance we have discussed in detail in the rest of the report.

πŸ›’οΈ The crude oil market is also making gains, reaching a new yearly record high with Brent crude rising above $82.50 a barrel. This adds to inflationary concerns and tensions in the markets.
πŸ’° Gold, meanwhile, continues to rise and is currently above $2,725 per ounce.

πŸ’Έ Lastly, Bitcoin managed to break above $100,000 last night, although it has fallen back to $99.685 in the last few hours.

🌍 Geopolitics:

πŸ‡©πŸ‡ͺ The German armed forces and defense ministry have suspended activity on Elon Musk’s social media platform X due to concerns about moderation policies and the spread of misinformation. The ministry may post on the platform in exceptional cases, such as addressing a disinformation campaign. They are angry that Musk has shown his support for the emerging AfD party, which is increasingly winning votes from Germans who are tired of Germany’s decline.

🌐 Donald Trump has confirmed his interest in acquiring Greenland, during a phone call with Danish Prime Minister Mette Frederiksen. The conversation highlights the US president’s continued interest in the territory, which has significant geopolitical and economic implications due to its strategic location and natural resources. The decision on Greenland’s status will likely depend on Denmark’s priorities and the will of the Greenlandic people. It certainly shows the intentions of the new US administration to strengthen global geostrategic control.

πŸ‡ΊπŸ‡¦ Russia is set to demand Ukraine reduce its military ties with NATO and become a neutral state with a limited army in talks with incoming US President Donald Trump.

πŸ•ŠοΈ Israel and Hamas have agreed to a ceasefire deal to halt the 15-month Gaza war, which has killed thousands and caused turmoil in the Middle East. The ceasefire will last for six weeks and includes the release of 33 hostages captured by Hamas, Israel’s withdrawal from Gaza, and the release of hundreds of Palestinian prisoners. The agreement was mediated by Qatari and American officials. However, turning the ceasefire into a permanent end will be challenging due to unresolved issues between Israel and Hamas.