Ankur Banerjee’s view of the day ahead in European and global markets
Global stocks and non-dollar currencies found a respite from their inflation worries, boosted by a strong start to the earnings season and a soft reading of US core inflation that revived hopes for a Fed rate cut this year.
But the recovery could be short-lived, with US inflation still looking a little too warm for comfort – and potentially facing upward pressure if the new Trump administration pursues an aggressive tariff and tax policy.
Cartier-owner Richemont Thursday’s sales report ( SIX: ) will be the main event during business hours in Europe, giving the first glimpse of the state of demand for luxury goods as luxury companies pin their hopes on US consumers while weakness persists in China.
Investors will also be cautiously watching developments in the Middle East after Israel stepped up strikes on Gaza hours after a ceasefire and hostage release deal was announced to end fighting that began 15 months ago.
While near-low core U.S. inflation for December lifted sentiment, pulling government bond yields lower and boosting stocks, analysts warn the 3.2% annual rate is still a bit high and the Fed is likely to remain on hold for a while time.
The strong earnings of American banks Goldman Sachs, JPMorgan Chase (NYSE:), Wells Fargo (NYSE:) and Citigroup (NYSE:). Wall Street CEOs expressed their belief that the new US administration will be good for business and good for banks.
Bank of America and Morgan Stanley (NYSE: ) will report results on Thursday.
European chipmakers could also look to Taiwan Semiconductor Manufacturing Co’s earnings report, which showed profits largely beat estimates. TSMC, whose customers include Apple (NASDAQ: ) and Nvidia (NASDAQ: ) , is being watched closely for signs of demand for AI-related chips.
The yen was the biggest mover in the currency market on Thursday, jumping to a one-month high in Asian hours after comments from Bank of Japan Governor Kazu Ueda fueled market bets on a rate hike next week.
The vast majority of economists polled by Reuters expect the BOJ to raise interest rates at one of two meetings this quarter, with most leaning toward a move in January.
A BOJ hike would depend on markets remaining calm when Donald Trump returns to the White House next Monday. His inaugural speech will be the focus of attention from politicians and policymakers around the world to gauge his likely policy moves.
Analysts expect Trump’s actions to boost growth but increase inflationary pressures, keeping the dollar well supported. So much so, in fact, that it has risen 5% in the two months since the US election on expectations that the Fed will keep rates higher for longer.
Scott Bessent, Trump’s pick to head the Treasury Department, vowed to ensure the dollar remains the world’s reserve currency as he laid out a vision for a “new economic golden age” in prepared testimony for the US Senate Finance Committee.
On the other hand, South Korea’s central bank unexpectedly left its interest rate policy unchanged and signaled it needed to wait for domestic political turmoil weighing on the currency to stabilize before it could make further rate cuts.
Key events that could affect the markets on Thursday:
– Data on inflation in Germany for December
– UK GDP estimate for November
– Eurozone trade balance for November
(Ankur Banerjee; Editing by Edmund Klamann)
