Slowing inflation and strong earnings in the US kept the mood positive last week. The dollar ended a six-week winning streak last week, alleviating market concerns about accelerating inflation while increasing the likelihood of two rate cuts by the Federal Reserve this year. Gold prices broke through the key $2,700/ounce level as the market bid farewell to the last trading week before Trump 2.0 as incoming US President Donald Trump is set to take office on Monday. With Trump returning to the White House, the market has been preparing for policy volatility and potential surprises.

U.S. stocks rebounded last week. Shares of the world's largest technology companies rose sharply on the eve of Trump's inauguration, pushing stocks to their best week since the November presidential election. The Dow Jones Industrial Average rose 3.7% to 43,487.83 for the week, the S&P 500 rose 2.9% to 5,996.66, and the Nasdaq Composite rose 2.5% to 19,630.20, its best weekly performance since early December.

Gold prices rose above the key $2,700 level last week, boosted by uncertainty over the policies of new U.S. President Donald Trump and renewed bets on further rate cuts. Gold hit a more than one-month high of $2,724 last week, $65 away from its all-time high of $2,790 set in October. Spot gold rose 0.38% to $2,702 an ounce for the week, while U.S. gold futures were at $2,748.70.

Silver prices held steady after three days of gains, trading at $30.350 an ounce before the end of last week, close to the $31.000 mark. Industrial demand for the grey metal could rise further on the back of strong economic data from China.

The dollar index fell last week, ending a six-week winning streak as investors await clues about Trump's presidential inauguration and the policy direction of the incoming administration. The dollar has jumped in the past few weeks on rising U.S. Treasury yields. Coupled with Fed Governor Waller's statement on Thursday that three or four rate cuts this year are still possible, the bond market has taken a breather from the relentless sell-off. This has led to markets increasing bets on the Fed cutting interest rates this year, putting some pressure on the dollar before Trump returns to the White House next week.

The yen posted its strongest weekly performance in more than a month, weighing on the dollar as expectations for a Bank of Japan rate hike next week continue to grow. The yen climbed more than 1% against the dollar this week, reversing last week's losses, and hit a one-month high of 154.98 yen earlier on Friday.

Sterling fell 0.31% to $1.2170 last week, not far from a 14-month low hit on Monday. Data released last Friday showed that UK retail sales unexpectedly fell in December, raising the risk of a contraction in the fourth quarter.

The euro rebounded 0.30% against the dollar last week to $1.0275. The euro rebounded from a more than two-year low of $1.0177 against the dollar, moving away from a more than two-year high hit earlier this week. An upward break above the 1.0350 resistance level could reach the next higher resistance area of ​​1.0436-1.0460.

AUD/USD returned to negative territory around 0.6200, failing to maintain momentum sparked by stronger-than-expected economic indicators from China. The pair was weighed down by persistent expectations of an interest rate cut in Australia and concerns about possible import tariffs in the United States. Meanwhile, the Australian dollar rebounded from 0.6131, the lowest since April 2000, to 0.6200 for three consecutive days, closing up 0.82% to 0.6196 for the week.

Last week, international oil prices maintained an upward trend throughout the week. It strengthened for the fourth consecutive week as the latest US sanctions on Russia's energy trade exacerbated concerns about oil supply disruptions. It exacerbated market concerns about oil supply disruptions. Brent crude futures fell 0.6% to close at $80.79 a barrel, but rose 1.3% this week. US WTI crude oil spot rose 1.4% for the week. It was reported at $77.30 a barrel.

The price of Bitcoin broke through $100,000 again last week, and the cryptocurrency industry was in high spirits in anticipation of early actions taken by President-elect Trump after he took office. Now it has embraced digital currencies with a "converter's enthusiasm." Bitcoin prices surged after Trump won the election last November, topping $100,000 for the first time last month, though they briefly retreated to around $90,000 earlier last week. Two years ago, the price of Bitcoin was just $20,000.

Federal Reserve Governor Christopher Waller said a rate cut could be in the first half of 2025 if inflation data continues to improve. His dovish comments boosted the bond market and eased investor concerns. Overall, the pullback in bond yields and earnings highlights provided some support to the market, but short-term volatility is still difficult to avoid. The 10-year Treasury yield fell from 4.66% to 4.60%, and the two-year Treasury yield fell from 4.27% to 4.23%.

This week's outlook:

The coming week is full of important events, especially the inauguration of U.S. President-elect Donald Trump and the Bank of Japan's first central bank decision-making meeting in 2025 on Friday. For the market, Trump's inauguration is undoubtedly one of the focuses.

Trump is about to take office. What is the focus of the financial market? It is expected that on the first day of his inauguration on January 20, he will propose a series of bills. He will not only revoke some of Biden's bills and continue the content of some bills in his first term, but also propose brand new bills. This will undoubtedly trigger a sharp shock in the financial market. From an asset perspective, he tends to boost the US stock market while putting pressure on non-US economies. Crude oil may face downward pressure, and the safe-haven function of gold may also be affected.

United States: Trump's inauguration and US stocks; US dollar trend

The S&P is expected to enjoy multiple benefits in the US stock market. Trump's new policy may implement tax cuts to reduce the burden on companies. At the same time, he will relax regulations, especially in corporate buybacks, to increase the flexibility of corporate capital operations. In addition, given that the Los Angeles fire caused about $150 billion in losses, Trump's new administration is very likely to launch a large-scale economic stimulus plan. Although the plan requires congressional approval and is difficult to implement in the short term, once the news spreads, it will greatly boost the three major US stocks. And the S&P is likely to reach 6,200 points. The Dow Jones Industrial Average is expected to reach 45,000 points.

The dollar has been supported recently, mainly due to market expectations that the Federal Reserve may be more cautious in cutting interest rates. Trump's tariff promises and policies of tax cuts and deregulation have sparked concerns about rising inflation (inflation has been stubborn before these expected policies are implemented). If Trump expresses a more hawkish tariff stance in his inaugural speech, the dollar may strengthen further and Treasury yields are expected to rebound.

Japan: Bank of Japan's monetary policy decision

The Bank of Japan will begin its first central bank decision-making meeting in 2025 on Friday. Governor Kazuo Ueda said they need more information before raising interest rates again, especially focusing on wage levels and the potential impact of Trump's economic policies. With the minutes of the December meeting mentioning that interest rates may rise earlier than expected, the market has begun to predict that there is about an 80% chance that the Bank of Japan will raise interest rates by 25 basis points at this meeting.

However, the Bank of Japan has historically failed to meet market expectations for hawkish policies, and if Trump is too tough on tariffs in his inaugural speech, it may affect the Bank of Japan's decision. If the Bank of Japan chooses to stand pat again, the yen may be hit.

Eurozone: Euro in deep trouble; another rate cut expected

The euro is in deep trouble. Europe is currently facing huge economic pressure, industrial transformation is difficult, and the political situation is divided. The political outlook is uncertain. The impact of the widening difference in monetary policy between the ECB and the Fed is expected to cut interest rates by another 95 basis points. After Trump takes office, if he implements tariffs to hit the European economy, or even withdraws from NATO or suspends military aid to Ukraine, the euro will face huge pressure and is likely to fall below the 1.0 parity mark.

UK: Impact of PMI data on the economy

The UK's preliminary S&P Global PMI for January will be released on Friday. Recently, the pound has performed poorly, affected by concerns about the possibility of a "Tesla 2.0" situation and the latest round of weak UK economic data. The Bank of England is expected to cut interest rates more aggressively than the Fed this year, with a 60 basis point cut expected. Therefore, if the PMI data points to more problems facing the UK economy, it may further increase the depreciation pressure on the pound.

Australia: RBA leans towards policy easing; three rate cuts expected this year

The RBA will start cutting rates by May, with three 25bp cuts expected this year, following weak conditions in previous months due to high interest rates and rising unemployment. The continued expectations of rate cuts in Australia and concerns about possible import tariffs in the US weighed on AUD/USD. In particular, the trade dispute with China, if escalated, would weigh on the currency of the Australian economy, which faces greater downward pressure as the two economies are economically interdependent.

Canada and New Zealand: Impact of CPI reports

Following the release of US CPI/PPI data this week, Canada and New Zealand will release their respective inflation data on Tuesday. Market expectations remain high as to whether the Bank of Canada will cut rates by another 25bp at its meeting on January 29, especially if Canadian CPI data is strong, which could promote gains in the Canadian dollar.

A February rate cut in New Zealand is seen as a certainty, the question is whether the cut will be 25bp or 50bp. As the New Zealand economy entered a technical recession in the third quarter, the market believes that the Reserve Bank of New Zealand may further cut interest rates in 2025. If the inflation data is below the target range of 2%, it may trigger market expectations of a sharp interest rate cut, thereby exacerbating the depreciation of the New Zealand dollar.

Uncertainty in the crude oil market is also increasing. Trump advocates increasing US energy production. If he revokes the relevant bills in the Biden era that prohibit US offshore drilling and sanctions on Russia, US and Russian crude oil supply will increase significantly and oil prices will face a decline. However, given the historical conflict between Trump and Iran, if the new government strengthens sanctions on Iran, oil prices may experience a new round of increases.

The gold market is also full of uncertainty. Since Biden took office, gold prices have risen sharply, which is closely related to his governance and management of the Federal Reserve. The new Trump administration may reform the Federal Reserve and even adjust fiscal reserve policies, such as introducing virtual assets. All of this may reduce the market's attention to gold and put downward pressure on gold prices. Investors need to pay attention to the short-term market conditions of gold, grasp the rhythm of operations, and make cautious decisions on long-term allocations.

Conclusion :

In the coming week, the market will focus on Trump's inauguration and the policy changes it may bring, as well as the decisions of the Bank of Japan and the performance of the eurozone and British economies. Market expectations for the US dollar remain strong, the yen may continue to be under pressure, and the euro and pound face greater downside risks.

The author would like to remind everyone that after Trump takes office, his remarks will have a significant impact on market sentiment, while the influence of data will be relatively weakened. When the US market opens, pay close attention to his news updates. Market conditions may break out quickly and fluctuate violently, but the duration may be shortened, and extreme market conditions may also occur due to factors such as negotiations. Please prepare in advance.

Important events and economic data overview this week: (Sydney time)

Important events:

Monday (January 20): Martin Luther King Day, closed for one day; Trump sworn in as the new US President

Tuesday (January 21): Davos World Economic Forum Annual Meeting held until January 24

Thursday (January 23): ECB President Lagarde delivered a speech

Friday (January 24): Bank of Japan Governor Kazuo Ueda held a monetary policy press conference; Bank of Japan announced interest rate decision and economic outlook report; ECB President Lagarde delivered a speech

Economic data overview:

Monday (January 20): Japan's November core machinery orders monthly rate; Japan's November core machinery orders annual rate

Tuesday (January 21): UK November unemployment rate - by ILO standard; Eurozone January ZEW economic sentiment index; Canada's December unadjusted CPI annual rate

Wednesday (January 22): New Zealand's fourth quarter CPI annual rate; US December Conference Board leading indicators

Thursday (January 23): Japan's December goods trade account - unadjusted; US initial jobless claims for the week ending January 18 (10,000); Canada's November retail sales monthly rate; Eurozone December consumer confidence index

Friday (January 24): Japan's December national CPI annual rate; UK January Gfk consumer confidence index; Eurozone January SPGI manufacturing PMI final value; UK January SPGI service industry PMI preliminary value; US January SPGI manufacturing PMI preliminary value; US January University of Michigan consumer confidence index final value

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