Macro Point
In January, financial markets experienced notable events that influenced their performance. European markets began positively, reacting to rumors of lower-than-expected US customs duties. Although these rumors were later denied, initial optimism led to a strong start. By Friday, profit-taking occurred as solid American employment figures reinforced the belief that the Federal Reserve would likely delay lowering interest rates. This sentiment caused Wall Street to lose ground ahead of the upcoming American inflation data. Subsequently, financial markets recovered, buoyed by reassuring US inflation data, a ceasefire in Gaza, and positive results from US banks and European luxury players. These factors contributed to a significant surge in the sector. The arrival of the new American president and the intensification of the quarterly results season introduced potential volatility, although initial data remained encouraging. Mid-January saw a positive reception for Donald Trump’s inauguration and his initial announcements, with the S&P 500 reaching a new all-time high. Europe also experienced a rebound, driven by the banking sector, luxury goods, and hopes for a less severe trade war with the US. Quarterly results continued to support the stock market. As central bank decisions and publications from American tech giants approached, market volatility was anticipated.
The final days of January began with turbulence due to concerns about artificial intelligence, sparked by the emergence of the Chinese startup DeepSeek. Despite this, positive US statistics, the European Central Bank’s rate cut, and favorable quarterly results-maintained investors’ appetite for risk.
The energy market in January experienced significant fluctuations. Oil prices rose due to a cold snap in the US, increasing demand for heating fuel. Brent traded at USD 78.70, while WTI was around USD 75. As the month progressed, oil prices continued to rise, reaching multi-month highs. Brent crude rose above USD 82 per barrel, while WTI briefly crossed the USD 80 mark. This increase was fueled by the International Energy Agency’s (IEA) upward revision of demand forecasts and potential supply disruptions due to sanctions against Russia. OPEC maintained a solid demand growth forecast through 2026. However, new US sanctions against the Russian energy sector exerted pressure on the market. Later in January, oil prices faced pressure following Donald Trump’s statements at the World Economic Forum in Davos, where he expressed a desire for OPEC and Saudi Arabia to increase production. Despite Trump’s efforts, convincing OPEC remained uncertain due to the fiscal needs of major members like Saudi Arabia. The Trump administration also aimed to ramp up US oil production, but it was challenging to imagine US majors producing more in a lower price environment. The EIA’s weekly report showed a further decline in US crude oil inventories, marking the ninth consecutive reduction. Brent traded lower at USD 77.90, while WTI was around USD 75. Towards the end of January, European gas prices reached their highest level since October 2023. European futures (Rotterdam TTF) rose by more than 6%, closing above EUR 52/MWh. This increase was attributed to unforeseen supply disruptions and expected higher demand due to dropping temperatures. Gas storage levels in the EU stood at around 55%, below the five-year average of 62%. Concurrently, the oil market continued to decline, largely due to uncertainties related to US pricing policies, which could restrict oil supply. The increase in weekly US inventories added further downward pressure on prices, with EIA data indicating an increase of 3.5 million barrels in US commercial crude oil inventories. By the end of the month, Brent was trading lower at USD 75.90, while WTI was around USD 72.60.
Industrial metal prices rebounded despite the rise in the dollar and threats of US protectionism. Copper prices reached USD 9,078 per ton in London, reflecting Beijing’s efforts to revive its economy and support its real estate sector. This resurgence in industrial metals was accompanied by a recovery in gold prices, which stood at USD 2,680, demonstrating resilience against rising bond yields. As the month progressed, copper continued its upward trajectory in London, buoyed by speculation surrounding the Trump administration’s trade policies. The anticipation of new US tariffs contributed to copper’s gain of over 5% since the beginning of the year, with the spot price trading around USD 9,170. Additionally, Antofagasta, a major Chilean producer, announced a slight increase in its copper production for 2024, although it fell short of initial expectations. Concurrently, gold prices surpassed the USD 2,700 mark, driven by a lull in US inflation and the prospect of lower interest rates. Mid-January saw heightened attention on President Trump’s statements, particularly the imposition of 25% customs duties on Mexico and Canada. This move sparked fears of global trade retaliation. Nevertheless, copper prices remained well-oriented in London, reaching USD 9,232 for the cash price, while aluminum also showed resilience at USD 2,623. These trends were supported by signs of economic recovery in China and the potential for a trade agreement between the US and China. The US dollar experienced a slight decline due to uncertainty surrounding US trade policies, which in turn favored a rise in gold prices.
The precious metal reached its highest level in nearly three months at USD 2,775 per ounce, marking a fourth consecutive weekly gain. Towards the end of January, aluminum prices rallied in London following the European Union’s proposal for a phased ban on imports from Russia. In contrast, copper faced selling pressure after President Trump threatened to impose tariffs on several metals, including copper, to boost US production. This pressure was exacerbated by poor economic data from China, with both manufacturing and non-manufacturing PMIs deteriorating, signaling a negative outlook for industrial metals consumption. Amidst these developments, gold prices rose above the USD 2,800 per ounce mark.
The agricultural market experienced fluctuations due to weather conditions, production forecasts, and geopolitical developments. Wheat and corn prices showed divergent trends, with wheat stabilizing downward and corn consolidating upward. Corn prices remained strong due to downward revisions in US production forecasts. Extremely cold temperatures in the US threatened winter wheat crops, increasing prices. Coffee futures reached new highs due to unfavorable weather in major producing regions and reduced global inventories. Grain prices fluctuated due to concerns over US tariffs, with corn and wheat prices showing a see-sawing pattern.
More generally,
January’s financial markets navigated a complex interplay of macroeconomic data, central bank actions, and geopolitical developments. The month began with surprisingly robust US job creation, exceeding expectations with 256,000 new jobs and a 4.1% unemployment rate. This positive economic sign, however, triggered market anxieties, as the strength of the labor market raised concerns about the Federal Reserve’s monetary policy trajectory. The prospect of continued rate hikes, or a delay in anticipated cuts, led to a 10-basis point jump in the 10-year US Treasury yield to 4.78%, negatively impacting equity markets. Mid-month offered a brief respite with a slightly lower-than-expected US consumer price index reading. This positive inflation data allowed US indices to recover some lost ground, and European markets, including the Euro Stoxx 50, also benefited. However, uncertainties surrounding upcoming political events and substantial debt financing needs kept investor caution high. The focus shifted to corporate earnings and bond auctions, with yields remaining a key indicator of market health. Towards the end of January, a diplomatic development involving the US and China brought a wave of relief. The announcement that potential customs duties might be avoided boosted European markets, while weakening the US dollar. Despite this, the 10-year US Treasury yield remained elevated above 4.50%, highlighting the continued influence of interest rate expectations. Positive inflation and government spending data were seen as crucial for a sustained easing of rates. January concluded with central bank actions largely aligning with expectations. The US maintained its stance, while the ECB cut rates by 25 basis points. US PCE inflation (excluding volatile items) met forecasts, contributing to a further easing of bond yields and bolstering hopes for continued market momentum. Looking ahead to February, the market faces potential new US tariffs, a wave of key corporate earnings reports (including Alphabet, Amazon, L’Oréal, Novo Nordisk, and TotalEnergies), and crucial macroeconomic data such as UK rate decisions, Eurozone inflation (forecast at 2.5%), and the US employment report. These factors will shape market sentiment and future central bank policy. The interplay between strong economic data, particularly in the US, and its potential impact on monetary policy remained a central theme throughout January, setting the stage for further market developments in the coming months.