📊 ATFX Connect-Market Report.
🇨🇳 China’s manufacturing purchasing managers’ index contracted in January, falling to 49.1, indicating a weakening in the country’s manufacturing activity. This is the weakest reading since August, highlighting calls for stimulus measures in the world’s second-largest economy. The non-manufacturing PMI also slowed to 50.2. China’s $18 trillion economy hit the government’s growth target of “around 5%” over 2024, but exports and industrial output outpaced retail sales, and unemployment remains high. The US’s threat to impose a 10% tariff on Chinese imports risks exposing China’s reliance on exports for growth.
📉 US stock futures and Asian shares outside China fell due to the launch of DeepSeek’s free, open-source AI model, which rivals OpenAI’s ChatGPT. This has raised concerns about potential disruption in the tech landscape and put pressure on tech companies’ lofty valuations.
🕒 In a few hours we will have the speech of the President of the ECB, Christine Lagarde. The European Central Bank (ECB) is meeting for the first time since Donald Trump returned to the U.S. presidency, with his tariff threats looming over the eurozone’s sluggish economy. The European Central Bank is considering lowering interest rates for a fourth consecutive meeting due to the sub-par euro-area economy’s performance, with analysts expecting only a 0.1% GDP growth in Q4. Traders expect the ECB to cut its key deposit rate by another 25 basis points to 2.75%, as the economic outlook remains challenging. A recent uptick in eurozone inflation to 2.4% is not seen as a major concern for the ECB, which expects wage growth to pull services inflation lower. If the U.S. Federal Reserve stops cutting rates, the ECB could slow its own rate cuts, but it would depend on the reason – a strong U.S. economy would be good news for Europe.
🏦 The BOJ is uncertain about raising rates without cooling economic growth and lacks conviction about a “neutral” interest rate. Staff estimates range from 1% to 2.5%, making it difficult to determine the appropriate pace of further hikes. The BOJ’s shift to clearer forward guidance, similar to the U.S. Federal Reserve, may be temporary as policymakers are wary of providing explicit signals before each meeting.
💰 On Wednesday the Fed will decide on interest rates. The Federal Reserve’s first meeting of 2025 is expected to be closely watched by investors as they assess the potential for more equity-friendly interest rate cuts. Stocks have rebounded after the Fed’s last meeting in December, which downgraded its forecast due to concerns about firmer inflation. Recent economic data (more contained inflation) has driven a rebound in U.S. stocks, with the S&P 500 hitting a record high. Investors expect the Fed to pause its easing cycle at this meeting, but are focused on what would be needed for the central bank to resume rate cuts. Fed funds futures are pricing in nearly two more rate cuts by the end of 2025.
Market view:
📈 Markets seem to be hungover from last week’s party marked by impressive rallies. Today, however, they are turning around in anticipation of the Fed’s interest rate decision, scheduled for Wednesday. S&P 500 futures are down 2% since Friday, with the mini S&P 500 trading at 6,035 points and still declining. Meanwhile, Nasdaq 100 futures are down more than 300 points at 21,300 points.
💵 The dollar, which weakened sharply last week, has been trying to regain ground in recent hours, approaching the 107.80 level on its DXY index, with a possible target of reaching 108 again. The EUR/USD, which traded above 1.05 for a few moments at the close of trading on Friday, is now retreating towards 1.0460.
📉 The European market also experiences a downward turn. DAX 40 futures are down more than 300 points since Friday, currently losing the 21,300 level.
🛢️ As for the crude oil market, it continues its downward trend despite a slight rebound in the last few hours. Brent crude oil, which was close to 79 dollars a barrel, seems to have the next target of breaking through the support of 78 dollars a barrel.
🪙 On the other hand, gold futures, which reached almost $2,800 per ounce on Friday, are currently down to $2,755 per ounce.
💸 Bitcoin, meanwhile, has added to the corrections, breaking the wedge it has been forming over the last two weeks. Since the afternoon, it has fallen by almost 7%, currently standing at 98,450 dollars.
Geopolitics:
🌐 The US and Colombia have halted a trade war after the White House announced Colombia’s agreement to accept military aircraft carrying deported migrants. The move comes after the US threatened tariffs and sanctions on Colombia for refusing to allow military flights carrying deportees. In exchange, the US will delay imposing tariffs and sanctions on Colombia, including a 25% tariff on Colombian goods. Colombia’s Foreign Minister confirmed they have resolved the impasse and have the presidential plane ready to facilitate the return of Colombians being deported. The dispute highlights tensions over immigration policies and the use of harsh measures against key US allies, such as Colombia.
🇩🇪 Germany’s government, which seeks to ban the German nationalist AfD party, is at the same time copying its policies, given the party’s success in the polls. The Christian Democratic front-runner for chancellor, Friedrich Merz, is putting up a change in immigration policy that includes quicker deportations and permanent border checks, which are some of the AfD’s stances.
🇭🇺 Hungarian Prime Minister Viktor Orban has urged the European Union to pressure Ukraine to re-establish Russian gas transit to Europe, linking it to the extension of sanctions against Moscow. Orban blames Ukraine for not renewing Russian gas transit this year and wants to wait Trump’s decisions before deciding whether to extend sanctions on Russia. He also requests guarantees from Ukraine for the main alternative gas supply route to Hungary, TurkStream, and protection of oil supply routes to Hungary.
🚢 As the new US administration and Russia strive to reach agreements and de-escalate tensions, someone continues to insist on submarine warfare. Over the weekend, another underwater data cable in the Baltic Sea—this one connecting Sweden and Latvia—was destroyed. NATO is implicated in criminal proceedings that have been started in Latvia. Following two other recent incidents, Latvia’s military dispatched a patrol boat to examine a ship suspected of being involved in this one.
🇷🇺 Putin declares that the Ukraine war would have been avoided if Trump had won the election in 2020.
🚀 Elon Musk appears at a rally of the patriotic AfD party to cheers from the crowd. ‘I believe you are the hope of Germany. And it’s good to be proud to be German, to be proud of your values and your culture’.
