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14/01/2025 - 08:39 UTCThe U.S. dollar traded almost unchanged against most major currencies on Monday, with the dollar index down by a mere 0.03% of its value ahead of key inflation data later this week where any surprise increase could further close the door on future easing. A slew of Fed officials are also due to speak this week.
Wall Street managed to finish in the green Monday, recovering from losses seen last week. Cyclical stocks like energy got a boost, while growth stocks, especially in tech, took a hit. Investors are increasingly worried that the Fed might hold off on raising interest rates, especially with important inflation numbers coming out soon. The tech sector experienced a decline, largely driven by a slump in semiconductor stocks, notably NVIDIA, following the White House's announcement of new export restrictions on AI chips to countries like China. Furthermore, concerns surrounding a prolonged pause by the Federal Reserve, leading to higher Treasury yields, weighed heavily on the tech sector. This coincides with a growing sentiment on Wall Street that only one interest rate cut is likely this year, fueled by worries about persistent inflation. With the possibility of a resurgence in inflation posing a significant risk to the stock market, Wednesday's release of the Consumer Price Index (CPI) data is highly anticipated.
Oil prices continue to gain sharply on Monday, with WTI adding another 1% to its value. The market's primary concern remains the impact of recent US sanctions on Russian oil. Prices increased on Monday after the US Treasury Department imposed sanctions on Gazprom Neft, Surgutneftegas, and 183 vessels involved in Russia's "shadow fleet" of tankers on Friday. The impact of these sanctions is expected to be severe with major oil importers like China and India possibly increasing their reliance on crude oil from the Middle East, Africa, and the Americas.
For Tuesday markets will most likely be focusing on the U.S. Core PPI data, the Federal Budget Balance and speeches from FOMC members Williams and Schmid. For the week ahead, attention could shift to U.S. consumer prices, U.S. retail sales, the Empire State Manufacturing index, the Philly Fed manufacturing index, the U.S. building permits and U.K. growth data. Of particular interest for investors is Wednesday’s US CPI report after minutes from the Fed's December meeting, released last week, showed policy makers remain concerned over inflationary pressures.
The EUR/USD pair extended its bearish trajectory on Monday, dropping to the 1.0200 level for the first time since late 2022 but managed to recover and end the session with minor gains of 0.20%.
Economic data from the Eurozone remains underwhelming as the trading week progresses. The European Central Bank (ECB) is expected to maintain its strategy of reducing interest rates, further widening the interest rate gap between the Euro and the US Dollar. Upcoming Pan-European and German final inflation reports, scheduled for midweek, are not anticipated to show significant revisions from their initial estimates.
In the US, key economic indicators take center stage. The Producer Price Index (PPI) figures, due later today, are projected to rise to 3.7% year-over-year in December, up from the previous 3.4%.
Gold prices retreated on Monday, as rising U.S. Treasury yields drove traders toward the safety of the Greenback.
A light economic calendar on Monday left investors reflecting on December's stronger-than-expected U.S. Nonfarm Payrolls data. The Consumer Price Index (CPI) for December, due Wednesday, might play a critical role in shaping market expectations for Federal Reserve policy.
Gold prices also faced downward pressure following reports from Reuters suggesting progress on a potential deal to end the Gaza conflict.
Oil prices climbed approximately 2% on Monday, reaching a four-month high as expectations of broader U.S. sanctions on Russian oil prompted Indian and Chinese buyers to seek alternative suppliers.
Geopolitical tensions also influenced the market. Mediators presented a final draft deal to Israel and Hamas to end the Gaza conflict, following a breakthrough in negotiations involving U.S. envoys.
As markets navigate supply disruptions and demand uncertainties, oil prices remain sensitive to evolving geopolitical and economic developments.
The US 500 closed modestly higher on Monday, erasing earlier losses as gains in cyclical stocks, particularly in energy and materials, helped offset weakness in growth sectors like technology. The move came amid heightened market focus on Federal Reserve policy ahead of key inflation data.
Cyclical sectors, including energy and materials, led the recovery as investors rotated out of tech stocks on concerns over prolonged high interest rates.
Concerns about a prolonged Federal Reserve rate pause and rising Treasury yields also weighed on tech stocks. Wall Street sentiment shifted, with markets now anticipating just one rate cut this year as inflation concerns persist.
Wall Street is gearing up for the fourth-quarter earnings season, with major banks set to report this week. JPMorgan Chase, Wells Fargo, Goldman Sachs, Citigroup, and Bank of New York Mellon will release their earnings on Wednesday.
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