Week of 26 January

Geopolitics continued to dominate the markets, as Greenland became the headline from Davos, overshadowing US inflation data and UK jobs and CPI figures. Precious metals soared throughout the week, with gold trading shy of $5,000/oz and silver just off $100/oz.

The week ahead sees a slower economic calendar, with highlights including the FOMC rate decision, BOC policy meeting, and Eurozone GDP. However, the corporate calendar will be at its peak, with most of the Magnificent Seven companies expected to provide guidance.

Week in Review

Markets opened the week lower after US President Donald Trump threatened tariffs on eight European countries that sent troops to Greenland in a show of solidarity with Denmark. Gold started the week at a record high along with silver and the broader precious metals complex amid a surge in safe-haven demand. Trump's Greenland gambit revived the "sell America" trade, which weakened the dollar through the rest of the week. He later announced a framework agreement with NATO and the removal of tariff threats, which led to a momentary relief in equity markets, but now the EU-US trade deal faces confirmation challenges.

European shares underperformed while US indices advanced, led by the Nasdaq, recovering losses from earlier in the week. Intel's earnings disappointed, as the company lost money, failed to meet AI demand, and posted worse-than-expected guidance, leaving its shares down 13% in after-market trading on Thursday.

Japanese bond yields rose to a record high amid fiscal concerns following the PM's call for snap elections on February 8. Strong verbal intervention throughout the week sparked speculation that the BOJ could intervene in markets. Japan's central bank kept rates unchanged as expected on Friday, but signalled more rate hikes in a hawkish shift. The concurrent release of quarterly BOJ staff projections raised GDP and inflation forecasts for the current year, with the USDJPY posting a strong correction but remaining higher for the week.

UK data offered a mixed bag, with both the unemployment and inflation rates rising faster. However, hotter-than-expected retail sales and PMIs, alongside a hawkish Greene, towards the end of the week, supported the pound.

Cold weather in Europe continued to deplete inventories, while a major snowstorm in the US raised natural gas prices and pushed crude prices higher toward the end of the week.

Biggest Market Movers

• Gold surged to a peak above $4,950/oz amid geopolitical tensions and de-dollarisation flows, along with other precious metals.
• The dollar declined 1% after Trump threatened NATO allies over Greenland, prompting several European entities to consider exiting their US Treasury holdings.
• Antipodean currencies (NZD, AUD) were the best performers amid the dollar slump, with hotter jobs data in Australia raising the chances of an RBA hike from 30% to 60% and harvest CPI out of New Zealand.
• The Russell 2000 scored an eighth record high, as small-cap stocks were the best performers amid geopolitical concerns.
• The yen was the weakest of the major currencies amid a selloff in Japanese bonds following parliament's dissolution for snap elections next month, losing over 3% against the Aussie.

Top Events in the Week Ahead

Geopolitical concerns could still dominate the coming week as markets process the fallout from Davos. The US Supreme Court still has not ruled on Trump's tariffs. In terms of scheduled events, the highlight is likely to be the FOMC rate decision amid improving US data.

US Economy Keeps Fed On Hold

The FOMC is widely expected to keep rates unchanged after inflation remained elevated and the US economy accelerated in the second half of last year. The focus will be on the Fed's outlook, with markets pricing in just a 15% chance of a rate cut in March. While the jobs market remains weak, traders will be looking for signs that FOMC members are concerned about the labour market to raise hopes of a rate cut at the next meeting. Gold’s weekly floor at $4600 will be hard to challenge, though prices over the $5k mark are likely to trigger some sort of pullback.

BOC to Hold Despite Inflation

Canadian inflation came in hotter than expected last week, but markets are locked in, expecting the BOC to keep rates unchanged. Analysts anticipate that economic underperformance will outweigh concerns over consumer prices. Traders will likely focus on Governor Tiff Macklem's comments to see if there are any hints of inflationary concern. With USDCAD in the red, 1.3700 is back on the agenda on the one side, while on the other, resistance sits at 1.3850.

Eurozone Economy Slowing

Friday sees the release of Eurozone Q4 GDP, expected to slow to 0.2% from 0.3% in Q3. However, the annual rate is projected to rise to 1.5% from 1.4% on more favourable comparables. Lately, the euro's strength has relied on hopes that the shared economy will outperform while the ECB stays sidelined. After soaring past 1.1700 to leave behind support, traders will focus on the peak of 1.1807 reached at the end of December.

Other Events & Earnings

Monday has the Ifo Business Climate for Germany. Tuesday sees Australian NAB business confidence figures. Wednesday includes German GfK consumer confidence. The US trade balance for November comes out on Thursday. For Friday, flash German January CPI is expected.

The earnings season accelerates this week, with a plethora of notable names reporting, including UnitedHealth, RTX, Boeing, Microsoft, Meta, Tesla, ASML, Apple, Visa, MasterCard, SAP, ExxonMobil, Chevron, Imperial Brands, Antofagasta, Glencore, and Lloyds.