Week of 19 January

Geopolitics dominated the week amid tensions in Iran, with gold and silver reaching record highs above $4,600 and $90, respectively. US CPI figures were cooler and UK GDP stronger than expected, supporting the FTSE 100 in achieving consecutive all-time highs amid the precious metals rally.

A busy economic calendar awaits for the coming week with China Q4 GDP, UK employment and inflation data, and US core PCE among the highlights.

Week in Review

Markets started the week on the back foot amid ongoing geopolitical concerns, including the situation in Iran. However, the Trump Administration's opening a probe into Fed Chair Jerome Powell weighed more on market sentiment, as traders worried about further erosion of the Fed's independence. Later in the week, Trump sought to calm markets, saying he had no intention to fire Powell.

Protests in Iran continued with a violent crackdown by authorities, intensifying fears of US intervention after last week Trump warned of military action to protect protestors. However, around midweek, the US President said intervention was on hold after noting that the Iranian crackdown was easing. Following the news, crude prices dropped but rose again on Friday amid reports of a US military build-up in the Middle East. Brent failed to sustain the intra-week break above $66, retreating to find support near $63.00 as the initial geopolitical risk premium faded.

The market took US CPI figures in stride, as the core rate matched expectations at 2.6%. Later in the week, an unexpected drop in jobless claims helped support risk sentiment, signalling that the US jobs market was more resilient than expected. By the end of the week, the odds of a Fed rate cut in March were less than 20%. US retail sales were higher than anticipated, which helped support the greenback.

UK GDP surprised to the upside, growing 0.3% in November, with October revised higher to flat. However, cable made little headway, as a firmer pound coincided with a stronger dollar. The FTSE 100 reached a new record, however.

Prospects that Japan will hold snap elections sent yields higher and the yen tumbling to lows not seen in 18 months at the start of the week. Weakness in the yen remained a focus through the week, with verbal intervention by Japanese officials, as the market increased the odds of a rate hike at the start of Q2. On Friday, rumours circulated of a potential joint intervention by Japanese and US monetary authorities to support the yen. The news came after US Treasury Secretary Scott Bessent made unusual comments meant to support the Korean won, which was also weakening. Dealers noted that emerging-market portfolios recorded the largest net foreign inflow since 2021. USDJPY surged to test the 159.50 resistance before pulling back to consolidate around 158.00 amid the intervention threats.

China's central bank, PBOC, made a surprise announcement that it would cut interest rates on its secondary policy tools for reinvestment, effective 19 January. The PBOC also cut the downpayment floor for commercial mortgages to boost the beleaguered housing industry. The move came after China reported its largest annual trade surplus on record, supporting commodity currencies.

Early on Thursday, TSMC reported earnings that surpassed all expectations, including capital expenditures of $52-56 billion, well above the $46 billion forecast. The company also noted a continued strong market for its AI chips, saying that demand from the US still outstripped its capacity. The news prompted a resurgence of confidence in the AI space, reversing Nasdaq losses from earlier in the week. However, the move wasn't enough to undo the rotation into value stocks, with the Dow ultimately outperforming for the week.

The US and Taiwan agreed on a trade deal that would include Taiwan spending up to $250 billion on new chipmaking facilities in the US.

Biggest Market Movers

• Antipodean currencies (AUD, NZD) were the best performers among the majors, aided by Chinese trade data.
• Gold surged to a record high above $4,600 per ounce due to safe-haven demand and concerns about central bank independence.
• ​Silver broke through $90 per ounce, hitting fresh all-time highs above $92.
• The FTSE 100 scored two consecutive record highs in the week, aided by GDP and miners, as gold prices were elevated.
• Brent swung from $63 per barrel to almost touch $67 before falling back amid geopolitical tensions in Iran and Venezuela.
• Bitcoin rose to a 2-month high, shy of $100k, driven by increased institutional demand amid rumours of pro-crypto legislation.

Top Events in the Week Ahead

The coming week will likely get off to a slow start, with the US observing a holiday on Monday. However, pending geopolitical issues could once again dominate market sentiment as traders await a resolution to the situation in Iran and the selection of Powell's successor, who has yet to be announced. In terms of data, the theme of the week will be inflation, as the US, UK, Japan, and Canada publish their latest CPI figures. On Friday, the BOJ is widely expected to keep rates unchanged despite inflation above target and a weakening yen.

US GDP and PCE Price Index Put Focus on Fed

Thursday is the big data day for the US, with the most important release likely being the Fed's preferred inflation measure, the PCE price index. The core rate is expected to remain unchanged at 2.8% annually, well above the Fed's target. At the same time, the final US Q3 GDP reading is expected to be confirmed at 4.3% annualised growth, amid a drop in imports. If PCE cools, watch for a gold break above $4,650 resistance towards $4,700, with hotter inflation bringing support at $4,550 into focus.

UK Inflation Remaining Hot

The avalanche of UK data this week starts on Tuesday, with the November unemployment rate projected to be unchanged at 5.1%. On Wednesday, the headline UK December CPI is expected to tick down to 3.1% from 3.2% a month earlier, with the core rate anticipated to have identical results. A hotter-than-expected inflation could push cable towards 1.3500, while a softer CPI may trigger a retest of 1.3300 support. Finally, on Friday, UK retail sales are expected to fall further into negative territory at -0.2% from -0.1% in November. 

Other Events and Earnings

Earnings season will lift off this week, with a growing number of major names reporting, including Netflix, 3M, Fastenal, Johnson & Johnson, Charles Schwab, Procter & Gamble, GE Aerospace, Abbot, Intel, Kier, Burberry, and SLB.