Markets face a pivotal week ahead as traders monitor President-elect Trump's potential policies and the Fed's monetary path. After global central banks began easing in 2024, 2025 outlook remains cautious amid persistent inflation concerns. Key focus will be on Friday's U.S. jobs report, with payrolls expected at 160,000 for December. The dollar hits a two-year high while Asian currencies struggle at multi-year lows.
Key Events and Data to Watch This Week
Monday
09:45 - China: Caixin Services PMI (Dec)
16:55 - Germany: HCOB Composite PMI (Dec)
17:00 - Eurozone: HCOB Composite PMI (Dec)
21:00 - Germany: Consumer Price Index (Dec) Preliminary
22:45 - US: S&P Global Composite PMI (Dec)
Tuesday
18:00 - Eurozone: H.Index of Consumer Prices (Dec) Preliminary
18:00 - Eurozone: Unemployment Rate (Nov)
23:00 - US: ISM Services PMI (Dec)
23:00 - US: ISM Services Employment Index (Dec)
23:00 - US: JOLTS Job Openings (Nov)
Wednesday
08:30 - Australia: Monthly Consumer Price Index (Nov)
15:00 - Germany: Factory Orders (Nov)
15:00 - Germany: Retail Sales (Nov)
18:00 - Eurozone: Consumer Confidence (Dec)
21:15 - US: ADP Employment Change (Dec)
Thursday
03:00 - US: FOMC Minutes
07:30 - Japan: Labor Cash Earnings (Nov)
08:30 - Australia: Retail Sales (Nov)
15:00 - Germany: Industrial Production (Nov)
18:00 - Eurozone: Producer Price Index (Nov)
18:00 - Eurozone: Retail Sales (Nov)
20:30 - US: Challenger Job Cuts (Dec)
Friday
09:30 - China: Consumer Price Index (Dec)
21:30 - US: Nonfarm Payrolls (Dec)
21:30 - US: Unemployment Rate (Dec)
21:30 - US: Average Hourly Earnings (Dec)
23:00 - US: Consumer Sentiment Index (Jan) Preliminary
Markets Brace for Packed Week Amid Trump Policies and Fed Outlook
After two relatively calm trading weeks, markets are set to follow a packed economic calendar this week. Traders continue to calibrate their expectations regarding the potential policies of President-elect Donald Trump, just weeks away from his inauguration, and the Federal Reserve's monetary path. Economic activity and labor market reports due this week could provide more insights into the U.S. economy in a year fraught with uncertainties.
In 2024, nearly all major central banks began easing monetary policy, spurred by falling inflation from pandemic-era peaks and contracting economic activity. These easing cycles are expected to continue in 2025, but cautiously.
Policy rates across major global central banks are now at less restrictive levels; however, monetary policymakers have yet to declare victory in the fight against inflation. Additionally, uncertainties stemming from the incoming Trump administration are making policymakers more cautious.
If Trump’s proposed trade tariffs are enacted, they could suppress economic growth and intensify price pressures across nearly all economies. This might compel central banks to slow the pace of easing. Bloomberg Economics estimates that interest rates in advanced economies will be only 72 basis points lower in 2025 compared to 2024.
In the U.S., the Fed has already shifted its focus toward rising inflation risks, scaling back its expectations for rate cuts in 2025 during last month’s meeting. Chair Jerome Powell emphasized that further adjustments would depend on the trajectory of inflation. The Fed’s preferred inflation gauge pointed to a 2.8% increase in November, indicating persistent underlying price pressures.
Other Fed officials have also voiced support for a cautious approach. Speaking at a weekend event, San Francisco Fed President Mary Daly and Fed Governor Adriana Kugler stated that inflation remains uncomfortably above target, signaling that the battle against inflation is far from over.
Additionally, Richmond Fed President Tom Barkin highlighted ongoing upside risks to inflation and growth, underscoring his preference for keeping rates restrictive for an extended period.
While maintaining a resolute stance on inflation, officials have also cautioned about labor market dynamics. They noted that restrictive monetary policy has not yet significantly harmed the labor market but emphasized that they do not want to see further slowdowns. Traders are therefore closely watching Friday's jobs report for additional cues.
U.S. employers likely slowed their hiring pace in the final month of the year. According to the median estimate of economists surveyed by Bloomberg, payrolls increased by 160,000 in December as the temporary effects of recent hurricanes and strikes faded. This would bring the average monthly job growth for 2024 to 179,000—a slower pace compared to the prior three years but consistent with a robust labor market.
Such a report is unlikely to alter Fed officials' views on slowing the pace of cuts, given that inflation risks remain tilted upward and the labor market appears resilient. According to the swap market, traders are pricing in a quarter-point Fed rate cut in June. However, a weaker-than-expected figure could ignite discussions about a potential March rate cut.
Meanwhile, the unemployment rate is expected to hold steady at 4.2%, while average hourly earnings growth is forecast to slow to 0.3% from the previous 0.4%. This recent deceleration in wage growth suggests that the labor market is no longer a primary source of inflation.
Throughout 2024, U.S. inflation and growth figures have been buoyed by consumer spending, primarily driven by high-income households. However, low-income households face rising debt burdens and default risks.
Looking ahead, the combination of higher inflation expectations and declining wage growth could weaken consumer spending. Such a scenario might reshape expectations for U.S. growth and dampen the strength of the U.S. dollar, despite steady job gains.
Gold Under Pressure as Fed Policy and Economic Data Awaited
Gold prices remain under pressure, retreating to $2,630 after giving up part of its early 2025 gains. The Fed's commitment to bringing inflation back to its target and its intention to reduce borrowing costs at a slower pace dampen the appeal of non-yielding gold. Traders are now focused on upcoming data that may provide further clarity on the Fed's policy trajectory.
This week’s U.S. jobs report is a key focus, as traders assess its potential impact on the Fed's monetary direction. Additionally, the minutes from the Fed’s December meeting, set to be released early Thursday, will offer insights into policymakers’ views ahead of critical labor market data.
Meanwhile, Goldman Sachs strategists, who previously forecast gold to reach $3,000 per ounce in 2025 ahead of the U.S. elections, have revised their projection slightly downward to $2,910 per ounce. The adjustment reflects expectations of a more cautious Fed. The bank anticipates a total of 75 basis points in rate cuts during 2025, a less aggressive outlook compared to market pricing.
On the other hand, the World Gold Council expects gold prices to experience more tempered growth, influenced by variables such as inflation and economic expansion. This slower pace of gains underscores the broader uncertainty surrounding the global economic landscape and the Fed's next moves.
Cautious Fed and Trump’s Tariff Threats Propel USD to Two-Year High, While Asian Currencies Slide
The combination of a cautious Fed and uncertainty fueled by Trump’s tariff threats has driven the U.S. dollar to its strongest level in two years, while Asian currencies have plunged to their lowest in nearly two decades. The Bloomberg Asia Dollar Index dropped to 89.040 on Monday, its lowest since 2006.
Trump’s tariff threats against China continue to weigh heavily on Asian economies, with traders awaiting stronger stimulus measures from Beijing. The People’s Bank of China (PBoC) reiterated its commitment last week to cut interest rates and the reserve requirement ratio for banks at an appropriate time to boost growth and domestic demand.
However, with tariff threats looming, the PBoC may need to allow further yuan depreciation to effectively ease monetary policy and support exporters.
Meanwhile, the Australian dollar faces further losses amid the prospect of a U.S.-China trade war. Economists warn that if China’s stimulus measures prove insufficient, the Reserve Bank of Australia (RBA) may be forced to deliver additional rate cuts to support the Australian economy. This could potentially push the Australian dollar down to 60 cents against the U.S. dollar.
Traders are also closely monitoring Wednesday’s monthly inflation data. Weaker-than-expected inflation could increase bets on an RBA rate cut in February, further pressuring the Australian dollar.
Finally, Japan’s November labor cash earnings data, set to be released on Thursday, could shape expectations for the Bank of Japan’s policy decision. BOJ Governor Kazuo Ueda recently hinted that rate hikes might be postponed until March to gather more insight into wage trends.
Traders anticipate a 25-basis-point hike by May, followed by another increase by year-end. However, Japan’s wide interest rate gap with many other economies is likely to keep the yen under pressure.
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