Weekly Wrap: Buckle up - Week Ending January 17

Market Movers

• Bumpy ride. After kicking off the year on a defensive tone, equities recovered and ended the week higher, with the S&P 500 +2.83% and the Nasdaq +3.19% week-to-date. A better-than-expected US consumer price index report eased rate concerns, and 10-year US Treasury yields fell back below 4.60%. Looking ahead, despite the US close in observance of Martin Luther King Jr. Day, markets will be focused on US President-elect Donald Trump's Monday inauguration. Investors will be focused on tariffs and immigration announcements, in addition to tax cuts, fiscal spending, and debt ceiling policies.

• Oil rally. Broader US sanctions on Russian oil producers and tankers drove this week’s oil gains, with West Texas Intermediate crude up 1.18% and Brent crude up 1.88% week-to-date. Concerns also continue, as Trump has been supportive of tougher sanctions on Russian oil.

• Crypto. Bitcoin surpassed the notable $100K mark again. It was up 11.27% week-to-date at $131,767 ahead of the Trump administration’s entrance into office, where pro-crypto policies are anticipated.

• Rising sun. The Nikkei index closed the week 1.67% lower ahead of the anticipated Bank of Japan meeting next week on January 24. The BOJ is expected to hike rates to 0.5%. The risks of postponing a rate hike would increase the potential of further yen depreciation.  

Macro

• Inflation moderation. The US CPI rose 0.4% month-over-month, with energy prices contributing over 40% of the increase. Core CPI rose less than expected at 0.2% month-over-month, marking the first slowdown since June. While not enough to prompt expectations for a January cut, odds of a March cut have increased from 15% to 30%. Federal Reserve Governor Christopher Waller suggested rate cuts could begin in the first half of 2025 if disinflation continues. Markets are currently pricing in approximately 40 basis points of cuts by year-end, and the first full cut is not priced until July. 

• Wildfire impact. Economists projected that Los Angeles County wildfires will reduce first quarter gross domestic product growth by 0.2% and lower January nonfarm payrolls by 15,000–25,000 jobs. Local California municipal bonds were downgraded from AA+ to AA-.

• Deteriorating trend. UK retail sales were weak at -0.3% month-over-month versus consensus of +0.4%. The shift adds to the broader deteriorating trend in UK growth news over the last two months. UK inflation unexpectedly eased in December to 2.5% from 2.6% in November. The cooling inflation calmed market fears and increased markets pricing a Bank of England cut of 50bps this year. The 10-year gilt fell 16bps this week, the most since October 30, 2024.

Micro

• Banks beat. The four largest US banks reported their second-most profitable year ever in 2024, driven by trading and lending revenues. Bank executives expect the Trump administration to ease regulatory oversight, further improving investor sentiment. An index of financial companies rose 6.276% week-to-date.

• Sunny outlook. A large semiconductor company provided an upbeat outlook on sales and capital expenditure on demand for AI hardware, beating analysts' estimates. The optimistic growth outlook is driven by AI chip demand, new smartphone chips, and outsourcing orders. A major index of semiconductor chips rose 5.587% week-to-date.

• Still pending. With the ban on a major social media app just days away, US politicians in both major parties are seeking ways to keep the Chinese-owned video-sharing app accessible for Americans. Social media stocks have traded up 3.092% week-to-date.

Checklist for the next week

• Major economic events in the US include: Initial Jobless Claims; UMich Sentiment; MBA Mortgage Applications; S&P Global Manufacturing PMI; Existing Home Sales; Leading Index

• Major economic events around the world include: BOJ Meeting; Canada CPI YoY; UK Jobless Claims Change; Hong Kong CPI Composite YoY; Australia Westpac Leading Index MoM