Take Five: And we’re off
2025.01.03 03:46
LONDON (Reuters) – The first full trading week of 2025 brings key U.S. jobs data as well as Chinese and euro zone inflation numbers.
These come against a backdrop of unease over the U.S. interest rate outlook and potential for policy surprises under U.S. President-elect Donald Trump, with the euro and already kicking off the new year on a weak footing.
Here’s what’s in store for world markets in the coming week from Rae Wee in Singapore and Alun John, Amanda Cooper, Dhara Ranasinghe and Samuel Indyk in London.
1/ JOB DONE
Markets have made their peace – mostly – with the idea that inflation will rise under Trump, given his pledges on tariffs, taxes and immigration.
Traders barely expect two Federal Reserve rate cuts in 2025, but still, stocks are within sight of record highs and look set for more of the same this year. What they might find harder to stomach is evidence that growth is slowing.
The Jan. 10 December non-farm payrolls report is forecast to show a rise of 150,000, versus November’s 227,000 jump.
A rise of 150,000 would bring 2024 job creation to 2.134 million. It’s hardly shabby, but it would be the lowest annual total, outside of a COVID-driven loss in 2020, since 2019’s 1.988 million. And if there’s anything the market needs right now, it’s proof of the resilience of the world’s largest economy.
2/ MORE CHINA GLOOM
China faces a precarious start to 2025, as authorities seek to counter Trump’s threats of tariffs in excess of 60% on imports of Chinese goods. Its stock market just logged the weakest New Year start since 2016.
During Trump’s first administration, Beijing allowed its currency to weaken to make exports cheaper and offset trade shocks. The yuan weakened more than 12% against the dollar in just over two years.
Economists expect Trump to impose tariffs of nearly 40% this time around, which could potentially slice China’s growth by up to 1 percentage point.
Beijing is reported to be mulling a weaker yuan again, though the potential magnitude of the tariffs make it almost impossible to resort to the same playbook.
Tariffs aside, for the week ahead, China releases December trade and inflation figures, which should provide a sense of how the world’s second-largest economy closed out 2024.
3/ INFLATION TEST
Investor bets on 100 bps of European Central Bank easing in the first half of 2025 face an early test from Tuesday’s December flash euro zone inflation data. German and French inflation numbers are due Monday.
Any signs that inflation is easing further would give the ECB scope to loosen policy and support a struggling economy. But analysts warn that early-bird Spain’s above-expectations print on the back of energy prices could be replicated elsewhere.
Energy could be a thorn in the ECB’s side with prices at 14-month highs. It’s not going to be repeat of 2022’s surge, but prices look set to remain elevated with less gas in storage compared to recent years, and the end of a decades-long deal for Russia to supply gas to Europe via Ukraine.
4/ LAGGARD AGAIN
2024 tested European equity investors, marking another year where shares lagged global peers, but some reckon relief may be around the corner.
There were bright spots — banks and aerospace & defence stocks which jumped 26% and 33% respectively. Investors are looking for a broadening out this year.
There are also risks: uncertainty surrounding Trump tariffs being the main one.
But the index is cheap, trading at a 41% discount to the U.S. . 100 trades at an even steeper 50% discount to the U.S. benchmark.
As the region gets comparatively cheaper it creates opportunity, and some investors are betting that 2025 could be the year where Europe’s equity markets rally strongly, if the economic outlook or geopolitical backdrop brightens.
5/ WHICH WAY NEXT?
The S&P 500 may have surged over 20% in 2024 and notched up a two-year jump of around 53% in the strongest back-to-back annual performance since 1998, but warning signs flickered as the year ended.
Unease that the Fed could pause rate cuts if inflation stays sticky or is pushed up by Trump tariffs is hurting sentiment, and investors liquidated global equity funds at the fastest rate in 15 years in the week to Dec. 18, LSEG Lipper data shows.
The coming days will show whether December’s risk off sentiment was fleeting or the start of something deeper. Trump’s policy signals and the response to his plans from trade partners will be key.
Also watch U.S. Treasury yields – they jumped 40 bps in December. Another surge could be the cue for the next round of stock selling.
