Global markets face a choppy ride ahead of U.S. inauguration day on January 20, with Britain and the U.S. releasing key inflation data, China publishing growth numbers while earnings on Wall Street and IPOs in Europe get underway.
A selloff in global markets is also unnerving investors, with British markets at the center of the storm.
Here’s what is in store for world markets in the coming week.
1/ STAGFLATION NATION
Britain’s economy is stagnating while inflation has rebounded to an eight-month high, putting the Bank of England in a bind.
As if that’s not enough, British gilts are firmly in the crosshairs amid a global bond squeeze. With the pound sinking and 30-year bond yields at their highest in more than a quarter of a century, finance minister Rachel Reeves faces her first major test, potentially forcing her to cut future spending.
Traders expect British interest rates to drop from 4.75% to 4.25% this year, but consumer price data on January 15 will show whether the Labour government’s public sector pay rises and tax hikes on employers have made the risks of monetary easing unbearable.
Unless inflation moderates, the chances of the BoE becoming paralyzed by uncertainty look set to rise.
2/ INFLATION RAMIFICATIONS
U.S. inflation data will provide a major test for the recent run-up in Treasury yields and investors’ tempered expectations for Fed rate cuts this year.
The December consumer price index, due on Wednesday, is expected to show a 0.3% monthly rise, according to a Reuters poll, following a similar rise in the CPI in the prior month.
The pace of inflation is one of the main risk factors for investors. At its December meeting, the Fed projected only two rate cuts this year, bracing for higher inflation than previously estimated. Market expectations are baking in about 40 basis points of easing in 2025.
A hot inflation number could further lift Treasury yields, whose swift ascent in recent weeks has rattled asset prices.
3/ THE ART OF TRADE WAR
January 17 is expected to confirm that China’s stimulus-fuelled fight against deflationary forces allowed it to achieve its 5% growth target for 2024.
But there is no time to celebrate. A much bigger battle is looming, and Beijing is already erecting defenses. Donald Trump’s return to the White House on January 20 could mean that the threat of 60% tariffs on Chinese imports could become a reality.
The People’s Bank of China announced the sale of an unprecedented 60 billion yuan ($8.18 billion) worth of six-month yuan bills in Hong Kong. That will drain liquidity to protect the currency just ahead of Trump’s inauguration, although gaping yield differentials with the U.S. will keep pressure on the currency – already at 16-month lows.
4/ BANKING ON EARNINGS
Robust investment banking fees, strong trading income, and easing pressure to boost deposit rates should make for a happy earnings season for U.S. banks.
Higher deal volumes and strong underwriting of bonds have helped lift revenue from investment banking fees in the fourth quarter by 26% year-on-year, Dealogic data shows. Trading revenues hit record volumes of $224.6 billion last year, according to research firm Coalition Greenwich.
Much scrutiny will be on the net interest income (NII) outlook – the difference between what banks earn from loans and what they pay for deposits.
JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), and Goldman Sachs (NYSE: GS) will kick off earnings on Wednesday, while Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) will report results on Thursday.
5/ GEARING UP FOR A DEBUT
Companies in Europe are gearing up to go public.
Spanish travel technology group HBX Group, whose brands include Hotelbeds, is eyeing a €1 billion ($1.03 billion) offering in the coming week. German drug manufacturer Stada – potentially valued at €10 billion – and fast fashion retailer Shein are among those expected to follow suit in the first half of the year.
Prospects for European issuers have improved, as Deutsche Bank and Citigroup analysts are bullish on European stocks for 2025.
Last year was a mixed bag: 101 European company IPOs raised $19.3 billion, 18% more than in 2023. However, LSEG data shows seven fewer transactions than in the previous year.
