Weekly Market Pulse - Week ending January 24, 2025

Market developments

Equities: The stock market is on track for its best start to a presidential term since Ronald Reagan’s in 1985, with the S&P 500 climbing 1.75% this week, nearing all-time highs. Meta Platforms announced a significant investment in AI, which positively influenced its stock price. Additionally, cryptocurrency-related stocks rallied due to Trump's executive order supporting the industry.

Fixed Income: The Federal Reserve is expected to maintain interest rates steady between 4.25% and 4.5% in the upcoming meeting next week, with market expectations leaning towards potential rate cuts later in the year. Overall, yields were relatively flat this week and bond prices closed a touch lower.

Commodities: Gold prices have surged close to record highs, driven by a weakened U.S. dollar and President Donald Trump's less aggressive stance towards China. Gold increased 2.5% this week, reflecting strong haven demand. Analysts suggest that even if new tariffs are imposed by the U.S., gold could still benefit, as it often serves as a hedge against economic instability.

Performance (price return)

Source: Bloomberg, as of January 24, 2025

Macro developments

Canada – Canada’s Inflation Eases, Retail Sales Rebound

The annual inflation rate dropped to 1.8% in December, the lowest since September, staying within the Bank of Canada’s 2% target for the fifth month. Food inflation fell sharply due to tax breaks, while shelter and rent costs eased. However, transportation costs rose, driven by higher gasoline prices. Month-over-month, consumer prices fell by 0.4%.

Preliminary data shows a 1.6% monthly rise in retail sales for December 2024, the strongest since May 2022. Motor vehicle and gasoline sales drove the growth, offsetting declines in other subsectors like food and beverages. Year-over-year, retail sales rose by 1.6%, despite a 1% drop in core retail sales in November.

U.S. – Private Sector Growth Slows Amid Rising Optimism

The S&P Global Flash US Composite PMI declined to 52.4 in January from 55.4 in December, indicating the weakest expansion in the private sector in nine months. The manufacturing sector saw a slight recovery with a PMI of 50.1, up from 49.4, marking an end to six months of contraction. In contrast, the service sector's PMI fell to 52.8 from 56.8, reflecting a slowdown in growth.

International – U.K. Unemployment Rises, U.K., Private Sector Growth Rebounds, Eurozone Activity Expands, Japan’s Inflation Surges, Japan’s Private Sector Expands, Bank of Japan Hikes Interest Rates

The U.K.’s unemployment rate increased to 4.4% between September and November 2024, the highest since May. Both short-term and long-term unemployment grew. Employment rose slightly, while fewer people held second jobs. The economic activity rate fell to 21.6%.

The U.K. Composite PMI rose to 50.9 in January, indicating private sector growth for two consecutive years. The services sector drove the expansion, but manufacturing contracted. Poor demand reduced new work, leading to job cuts. Rising input costs drove inflation, while business expectations declined for the sixth month.

The Eurozone Composite PMI rose to 50.2 in January, marking its first expansion since August. Growth in services offset manufacturing contraction, led by Germany. New orders fell for the eighth month, though at a slower pace. Rising input costs boosted output inflation to a five-month high.

Japan’s annual inflation hit 3.6% in December 2024, the highest since January 2023. Food and energy prices surged due to the removal of subsidies. Core inflation reached a 16-month high of 3.0%. Monthly CPI rose 0.6%, the largest increase in over a year.

Japan’s Composite PMI rose to 51.1 in January, marking three months of private sector growth. Service demand surged, while manufacturing contracted. Employment growth accelerated, backlogs decreased, and export declines slowed. Input costs and selling prices rose, but optimism weakened.

The Bank of Japan raised its key interest rate to 0.5%, the highest in 17 years, reflecting inflation and wage growth progress. It’s the third rate hike since ending negative rates in 2024. The BoJ raised inflation forecasts but slightly reduced GDP growth projections for 2024, citing labour shortages.

Quick look ahead

A = Advance