InvestMacro

At the end of Wednesday, the Dow Jones Index (US30) decreased by 0.31%. The S&P 500 Index (US500) was down 0.47%. The Nasdaq Technology Index (US100) fell by 0.51%.

The US Federal Reserve kept the federal funds rate at 4.25%-4.5% at its January 2025 meeting, in line with expectations. The Central Bank halted its rate-cutting cycle after three consecutive rate cuts in 2024 totaling a full percentage point. Chairman Powell said the Fed was in no hurry to cut interest rates and that it paused rate cuts to see further progress on inflation. Policymakers noted that recent indicators show that economic activity continues to grow at a solid pace. The unemployment rate has stabilized at low levels in recent months and labor market conditions remain stable.

The Bank of Canada (BoC) cut its key interest rate by 25 bps to 3% in its January 2025 decision, as markets had expected, marking a 200 bps rate cut since the start of the June 2024 rate cut cycle. Meanwhile, the Central Bank also announced the end of quantitative tightening and will resume asset purchases in early March to shore up liquidity and boost economic activity. The Governing Council noted that CPI inflation has moved closer to the 2% mark in recent months and is expected to remain close to the target over the next two years.

Mexico’s unemployment rate fell to 2.4% in December, the lowest since March and a 22-year low, exceeding estimates and signaling the strength of the labor market. This eased pressure on Banxico to maintain its dovish stance, bolstering confidence in the economy. Nevertheless, Banxico’s 2025 monetary program has softer conditions and potential rate cuts beyond 2024, and a 25bp rate cut in February remains the consensus.

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) rose by 0.97%, France’s CAC 40 (FR40) closed down 0.32%, Spain’s IBEX 35 (ES35) gained 1.09%, and the UK’s FTSE 100 (UK100) closed positive 0.28%. The DAX Index gained nearly 1% to hit a new record high of 21637.5 on Wednesday, continuing to rise for the second consecutive day. Investors were assessing fresh corporate results and preparing for key ECB monetary policy decisions today, where a 0.25% rate cut is expected.

Sweden’s Riksbank cut its discount rate by 25 bps to 2.25% at its January 2025 meeting in line with market expectations, citing inflation near the 2% target but continued economic weakness. This is the fifth consecutive rate cut and the sixth since May, totaling 175 bps. Previous rate cuts have benefited households and businesses, although their full impact on demand remains to be seen.

WTI crude oil prices fell below $73 a barrel on Wednesday as traders assessed the impact of potential US tariffs on Canada and other oil suppliers, as well as concerns about rising inventories. President Trump’s plan to impose 25% tariffs on Canada and Mexico, which would begin on February 1, added to the pressure as Canada is a major supplier of oil to the US. The threat weakened Canadian crude prices and US inventories rose by 3.463 million barrels, the first increase after nine straight weeks of declines.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) was up 1.02%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading due to holidays, while Australia’s ASX 200 (AU200) was positive 0.57%.

The Hong Kong Monetary Policy Authority (HKMA) kept the benchmark rate unchanged at 4.75% on January 30, hours after the US Federal Reserve kept borrowing costs unchanged. Monetary policy in the Asian financial center is conducted in line with the US as the local currency is pegged to the US dollar. The HKMA last cut interest rates in the city by 25 bps in December.

The New Zealand dollar remains under pressure amid growing expectations that the Reserve Bank of New Zealand (RBNZ) will cut its 4.25% monetary rate by 50 bps at its February meeting. Markets also expect further rate easing to 3.0% by the end of the year. In economic news, New Zealand business confidence fell to a five-month low in January (54.4 vs. 62.3 in December).

In Australia, major banks such as Westpac and NAB have brought forward their projections for the first RBA rate cut, now predicting it could come in February rather than May. Markets rate the probability of a 25 basis point cut in the money rate to 4.35% at the Central Bank’s February 18 meeting at 95%.

The Dow Jones Index (US30) was up 0.31% on Tuesday. The S&P 500 Index (US500) added 0.92%. The Nasdaq Technology Index (US100) jumped 1.59%. The US stocks rose by 1.5%, led by the Nasdaq Index, as technology stocks recovered from Monday’s selloff. Nvidia rose by 8.8%, recovering some of the historic 17% loss in a single session that wiped out a market value of $593 billion. Broadcom and Oracle added 2.6% and 3.6%, respectively, amid general strength in the technology sector. Meanwhile, Royal Caribbean soared 11.9% on optimistic earnings estimates and General Motors fell 8.9% due to earnings concerns and potential US tariffs on imports of microchips, pharmaceuticals and steel.

The FOMC will meet today for its monetary policy meeting. Markets expect the FOMC to keep the target range for the federal funds rate unchanged at 4.25-4.50% when the 2-day FOMC meeting concludes on Wednesday. However, markets will gauge the Fed’s views on growth and inflation in Fed Chair Powell’s comments after the meeting.

Equity markets in Europe traded flat yesterday. The German DAX (DE40) rose by 0.70%, the French CAC 40 (FR40) closed down 0.12%, the Spanish IBEX 35 (ES35) added 1.31%, and the British FTSE 100 (UK100) closed positive 0.35%. The DAX hit a new record high on Tuesday, following yesterday’s losses due to concerns over the high valuations of some companies and the prospects for the growth of artificial intelligence.

WTI crude oil prices are hovering around $73 a barrel, remaining near a two-week low, as traders’ attention turned to President Donald Trump’s wide-ranging set of tariffs. Trump has said he will soon impose tariffs on foreign-made goods such as steel, aluminum and copper, raising concerns about the potential impact on global demand for commodities. In addition, Treasury Secretary Scott Bessent reportedly supports the gradual imposition of universal tariffs on US imports, starting at 2.5%.

The US natural gas (XNG/USD) prices fell below $3.6/MMBtu, nearly to a three-week low, due to warmer-than-expected weather projections for early February. However, analysts still expect 317 Bcf of gas to be withdrawn in the week ended January 24, which could eliminate a gas inventory glut for the first time since early 2022 and boost gas prices. Meanwhile, LNG exports are rising, helped by the restart of Texas-based Freeport LNG.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) fell by 1.39%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading due to holidays, and Australia’s ASX 200 (AU200) was negative 0.12%.

The Australian dollar fell below USD 0.625 on Wednesday, posting a third straight session of losses as weaker-than-expected domestic inflation data fueled expectations of an interest rate cut by the Reserve Bank of Australia (RBA) in February. The data showed Australia’s annual inflation rate slowed to 2.4% in Q4, down from 2.8% in Q3 and below the prognosis of 2.5%. The quarterly figure was also below expectations at 0.2%. Markets are now pricing in an 80% chance that the RBA will cut its monetary rate by 25 basis points to 4.35% at its February 18 meeting. The Australian dollar also faced downward pressure due to escalating tariff threats from US President Donald Trump and ongoing economic problems in China, Australia’s main trading partner.

At Monday’s close, the Dow Jones Index (US30) was up 0.65%. The S&P 500 Index (US500) decreased by 1.46%. The Nasdaq Technology Index (US100) fell by 2.97%. The fall in technology stocks on Monday impacted the overall market. Shares of chipmakers and artificial intelligence-related companies fell on Monday as Chinese artificial intelligence startup DeepSeek appears to be delivering performance comparable to Western chatbots for less price. DeepSeek’s latest, released last week, is widely considered competing with OpenAI and Meta Platforms and is now ranked number one on the Apple App Store.

Shares of artificial intelligence company Nvidia (NVDA) fell nearly 17% on Monday, wiping out $589 billion in market value and weighing down the Nasdaq Composite Tech Index as a new model from Chinese startup DeepSeek cast doubt on recent investments in AI infrastructure. Much of the current rise has been on the expectation that US companies have an exclusive advantage in AI, and they can dominate the field and make a lot of money accordingly. However, a Chinese startup is shattering this myth by proving that neural networks can be affordable and accessible. This could significantly hit US stock indices, which many experts believe are inflated due to the AI bubble.

Falling prices for crude oil, which plays a key role in Canada’s economy, are adding pressure on the Canadian dollar as market participants fear the broader implications of tariffs imposed on Canada, Mexico and China, which could reduce global energy demand and growth. These risks, combined with the growing interest rate differential between the US and Canada, put additional pressure on the loonie, making it difficult for it to recover in the near term, especially amid expectations of a possible rate cut by the Bank of Canada.

Equity markets in Europe traded yesterday without a single dynamics. German DAX (DE40) fell by 0.53%, French CAC 40 (FR40) closed down by 0.27%, Spanish IBEX 35 (ES35) gained 0.12%, British FTSE 100 (UK100) closed up 0.02%.

On Monday, WTI crude futures fell more than 2% to $73 per barrel, setting a one-month low. Earlier in the session, weak economic data from China, indicating a decline in factory activity, heightened fears of weaker demand from the world’s largest oil importer. These concerns were heightened by the prospect of US tariffs that could exacerbate economic growth and energy demand problems. Despite these concerns, Saudi Arabia has signaled its intention to raise oil prices for Asia, reflecting tightening global supplies due to OPEC+ production cuts and recent US sanctions against Russian oil exports.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) was down 0.92%, China’s FTSE China A50 (CHA50) was up 0.07%, Hong Kong’s Hang Seng (HK50) increased by 0.66% and Australia’s ASX 200 (AU200) was positive 0.36%.

On Tuesday, the New Zealand dollar extended its fall to US$0.565, continuing its retreat from a five-week high as the US dollar recovered from President Donald Trump’s new tariff threats. On Monday, Trump announced plans to impose tariffs on imported microchips, pharmaceuticals, steel, aluminum, and copper to boost domestic production. Traders also remain on edge as the February 1 deadline for the first round of tariffs aimed at countries including China, New Zealand’s biggest trading partner, approaches.

The Australian dollar weakened to US$0.625 on Tuesday, declining for a second straight session as the US dollar gained ground after fresh tariff threats from US President Donald Trump. On the domestic front, data showed business confidence in Australia improved in December. Investors are now focused on upcoming inflation data, which could heighten expectations of a potential rate cut by the Reserve Bank of Australia in February.