At the end of Friday, the Dow Jones Index (US30) fell by 1.63% (-1.31% for the week). The S&P 500 Index (US500) fell by 1.54% (down -1.09% for the week). The Nasdaq Technology Index (US100) decreased by 1.57% (week-to-date -1.18%). The US stocks fell sharply on Friday following a stronger-than-expected jobs report that dampened expectations of further interest rate cuts by the Federal Reserve in 2025. The December jobs report showed a robust labor market, with 256,000 new jobs and a drop in the unemployment rate to 4.1%, which beat the projections. This raised concerns that the Fed may keep rates elevated for a long time. Meanwhile, the University of Michigan’s Consumer Sentiment Index showed an increase in inflation expectations. Inflation expectations for the year ahead rose to 3.3%, the highest level in eight months, from 2.8% in December, while long-term inflation expectations also rose to 3.3% from 3%.
In Mexico, the latest Banxico meeting minutes hinted at more rate cuts, coinciding with inflation falling to a 46-month low of 4.21% year-on-year in December, fueling expectations for a 50 basis point rate cut in February. Adding to the peso’s woes was that President-elect Donald Trump has proposed declaring a national economic emergency and imposing massive tariffs on imports, adding to concerns about Mexico’s trade prospects.
The Canadian dollar weakened to 1.44 per US dollar as markets digested labor market data signaling a softening. Although December data showed a strong net job gain of 91,000 and a drop in the unemployment rate to 6.7%, the figure remained the second highest since September 2021, reinforcing expectations of a rate cut by the Bank of Canada. However, we should not forget that the Fed’s hawkish stance contrasts sharply with the Bank of Canada’s dovish outlook, emphasizing the divergence of monetary policy towards USD/CAD quotes growth. On the other hand, the Canadian dollar is a commodity currency and is strengthening on the back of rising oil prices.
Equity markets in Europe were mostly declining on Friday. The German DAX (DE40) fell by 0.50% (for the week +1.16%), the French CAC 40 (FR40) closed down by 0.79% (for the week +1.61%), the Spanish IBEX 35 (ES35) decreased by 1.50% (for the week +0.25%), the British FTSE 100 (UK100) closed negative 0.86% (for the week +0.30%).
In the UK, British government bond yields hit a 17-year high, further complicating the ruling Labor Party’s attempts to revive economic growth. Higher rates make financing current operations and debt repayments more costly for the government, increasing the risk that it will have to make spending cuts or raise taxes.
Norway’s inflation rate has fallen to a 4-year low. Norway’s annualized consumer inflation rate fell to 2.2% in December 2024, the lowest since December 2020, down from 2.4% in November. The rate also missed estimates of 2.5% and came close to the Central Bank’s 2% target. For the full year, core inflation averaged 3.1%, the lowest in four years. This increases the likelihood of further rate cuts by Norges Bank.
WTI crude prices rose by 3.6% on Friday, a gain not seen since October, as new US sanctions on the Russian oil sector raised fears of supply disruptions to the global market. The US Treasury Department sanctions target Russian oil producers Gazprom Neft and Surgutneftegaz, as well as more than 180 vessels, oil traders, and energy sector officials, to curb Russian oil trade and heighten geopolitical risks.
The US natural gas prices (XNG/USD) jumped more than 6% to above $3.9/MMBtu on Friday on prognoses of colder weather and increased heating demand over the next two weeks. For the week, natural gas prices are up more than 17%. Meteorologists are estimating below normal temperatures across much of the US through January 25, with the coldest days still to come.
Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) fell by 1.89%, China’s FTSE China A50 (CHA50) declined 1.90%, Hong Kong’s Hang Seng (HK50) lost 3.95%, and Australia’s ASX 200 (AU200) was positive 0.53%.
The People’s Bank of China (PBOC) and other regulators plan to strengthen foreign exchange market management, combat destructive behavior, and prevent risks of yuan overvaluation. The Central Bank also raised the parameter for cross-border financing to 1.75, which will boost overseas borrowing. The measures are aimed at supporting the yuan amid a weakening economy.
On Monday, the New Zealand dollar traded near US$0.557, at its lowest level in more than two years, pressured by a strong US dollar. The dollar’s rise followed stronger-than-expected US jobs data that underscored the resilience of the US labor market and supported the Federal Reserve’s cautious stance on rate cuts. The kiwi was also weakened by continued expectations that the Reserve Bank of New Zealand will cut its 4.25% monetary rate by 50 bps in February and further to 3% by the end of the year.
