Macroeconomic Events
US:The US labor market showed mixed signals in January, with nonfarm payrolls increasing by 143,000 — below expectations — while the unemployment rate edged down to 4.0%. Wage growth exceeded forecasts, rising 0.5% monthly and 4.1% annually. The Federal Reserve kept rates unchanged at 4.25%-4.5%, signaling caution amid persistent inflation, which climbed to 3.0% in January. Core inflation also rose, driven by shelter costs, leading markets to scale back expectations for rate cuts this year. Political uncertainty remains, with President Trump advocating immediate rate cuts and imposing new tariffs on Canadian, Mexican, and Chinese imports, prompting retaliatory measures. The Federal Reserve highlighted concerns about the inflationary impact of tariffs and indicated a need for more progress on inflation before considering further rate cuts.
Europe:Euro area inflation rose to 2.5% in January, led by increases in energy and food prices. The ECB cut interest rates by 25 basis points, marking its fifth cut, bringing the deposit facility rate to 2.75%. ECB President Christine Lagarde acknowledged weak economic growth but signaled continued monetary easing. Markets expect more rate cuts from the ECB than from the Fed, given the differing inflation dynamics.
Geopolitical Events
US-Ukraine tensions escalated as President Trump criticized Ukrainian leadership and pushed for a mineral revenue-sharing agreement as part of a US-Russia peace deal. The proposed agreement would grant the US a 50% stake in Ukraine’s mineral resources, raising concerns in Kyiv. Meanwhile, the start of US-Russian talks on the Ukraine conflict weighed on oil markets, with prices falling on expectations of eased supply constraints.
Market TrendsUS stocks continued their upward trajectory, with the S&P 500 reaching an all-time high of 6,144. Optimism surrounding Trump’s tariff pause on Canada and Mexico offset concerns over persistent inflation and a higher-for-longer Fed policy stance. Corporate earnings were mixed — megabanks posted strong Q4 results, while major tech firms saw volatility amid earnings misses and increased AI investments. Market sentiment remains positive in the near term, assuming Trump refrains from escalating tariffs further, though volatility is expected given policy unpredictability. In fixed income markets, declining U.S. Treasury and European bond yields reflected shifting expectations for central bank policy and a cautious risk environment.
Oil Crude prices declined sharply, with US oil down 11% to $71 per barrel and Brent down 8% to $75. US-Russia peace talks and trade tensions contributed to bearish sentiment. A potential relaxation of Russian oil sanctions could drive prices lower, while failed negotiations could trigger a rebound. Gold prices were largely flat, with inflation concerns and geopolitical risks offsetting pressure from a stronger dollar.
Currencies:The U.S. dollar weakened against major currencies, driven by changing market expectations regarding U.S. interest rates, where as the Euro strengthened supported by better-than-expected economic data in the Eurozone.