Week of 12 January

Last week was dominated by geopolitical developments, with Venezuela and Iran in focus as markets returned from the holidays and looked ahead to Friday's US NFP.

A fairly busy economic calendar awaits next week, with highlights including US inflation, China's trade balance, and UK monthly GDP figures.

The Week in Review

As traders returned from the holidays and prepared for a new year, geopolitical developments took centre stage in the week's headlines. The US's incursion to capture Nicolas Maduro, the unrecognised President of Venezuela, on drug charges, sparked a drop in crude, and markets took on a cautious stance. US President Donald Trump reiterated his interest in annexing Greenland, heightening tensions between Washington and Brussels. Just as markets were coming to terms with the situation in Venezuela, mass protests in Iran caught headlines later in the week after Trump said he would support protestors in the oil-rich nation, and authorities curtailed access to the internet.

Markets advanced cautiously, with more value-laden indices like the Dow Jones and S&P 500 rising to new record highs while the tech-heavy Nasdaq underperformed. In the tech space, solid earnings from TSMC on Friday, coupled with China authorising the commercial purchase of some of Nvidia's H200 chips, helped restore some positivity.

US data were mixed. ADP employment was below estimates, but wages rose. JOLTS job openings were at their lowest level since 2021, while the trade deficit fell to its lowest level since 2009, which is expected to boost Q4 GDP. Amid the data dump, Trump made several market-moving announcements, including criticising defence contractors for repurchasing shares and paying dividends. Raytheon dumped 6% after being singled out in a Trump social media post, before recovering. Trump also moved to ban institutional investment in housing and instructed Fannie Mae and Freddie Mac to buy up to $200 billion in mortgage-backed securities (MBS) to lower housing prices.

Eurozone inflation was cooler than anticipated, returning to the ECB's 2.0% target and reducing the likelihood that the central bank will adjust rates anytime soon. The euro continued to weaken throughout the week amid a stronger dollar, as investors remained in safe havens.

Biggest Market Movers

• The FTSE 100 rose to a record high on Tuesday thanks to outperformance in the healthcare sector, but remained lower through the rest of the week.
• The dollar trended higher compared to other currencies amid general market caution ahead of risk events at the end of the week.
• Among the worst-performing major currencies was the CAD, which was weighed down by crude prices and trader caution ahead of the Friday jobs report.
• WTI whipsawed, falling at the start of the week amid expectations that higher supply from Venezuela, then rising in the latter half of the week over concerns of a disruption in the Strait of Hormuz due to unrest in Iran.

Top Events in the Week Ahead

Geopolitics could take the limelight again next week, despite a few high-profile data points expected. Notably, US Secretary of State Marco Rubio is expected to visit Denmark this week to advance Trump's proposal regarding Greenland. Depending on the outcome, it could increase tensions across the Atlantic. Markets are also still watching the fallout from the situation in Venezuela and the protests in Iran. The US Supreme Court might also have ruled on Trump's tariffs, and traders will be watching how the White House responds. All of that could come on top of potentially market-moving data releases.

US Inflation Seen Cooling

December US CPI figures are set to be released on Tuesday, with the headline inflation rate projected to tick down to 2.6% from 2.7% in November. The core rate is projected to stay unchanged at 2.6%. That could help ease the pressure from Fed hawks, particularly if it signals that the dreaded tariff-induced inflation isn't materialising, and pave the way for more easing. Typically, that would weaken the dollar, assuming no other geopolitical events disrupt the market reaction. With the ECB on the sidelines, the EURUSD could receive support if the odds of a March Fed rate cut rise. In that case, the pair could retest resistance at the 1.1800 handle, while a move lower could find support at the December swing low at 1.1500.

China Trade Remains Resilient

Market attention on Wednesday will likely focus on China's December trade balance, with consensus for the surplus to narrow modestly to $105 billion from $112 billion in November. Traders will be looking to see whether exports continue to grow faster than imports, which would indicate stronger commodity demand. The AUDUSD has been pulling back from its year-high at 0.6740, and if the data disappoint, it could head for support at the December swing low at 0.6600.

UK Economy to Remain Depressed

Thursday brings the release of UK monthly GDP data for November, which is expected to show a repeat of October's -0.1% growth rate. The rolling 3-month GDP growth rate is also forecast at -0.1%, as the British economy hesitated ahead of the release of the Autumn Budget. This could set the stage for a negative Q4 GDP, and end the general upward trend seen in cable since the budget was released. The pound has lost ground against the greenback since the start of the year, trading off recent resistance at 1.3500, with support at the 50-day MA at 1.3300.

Other Events and Earnings

Tuesday includes the Australian Westpac consumer confidence. US retail sales are expected to be released on Wednesday. Thursday has the German full-year GDP. Final German CPI data will be released on Friday. Corporate earnings reports start to pick up this week, with Tuesday being the unofficial start of Q4 earnings season. Among the major names expected to report are JPMorgan, Bank of New York, Delta Air Lines, Bank of America, Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs, BlackRock, PageGroup, Robert Walters, and Persimmon.