Because new economic data, such as the U.S. Consumer Price Index (CPI) and the beginning of the corporate earnings season, may affect market sentiment, this week is critical for investors. Financial markets will have a difficult start to 2025 as long as inflationary pressures and oil prices continue to rise.
Inflation fears reignite as energy prices soar
Energy markets have added to inflationary concerns, with significant price increases observed in both oil and natural gas. The impact of U.S. sanctions on Russia and seasonal weather changes have exacerbated supply constraints. Key developments include:
- Crude oil prices surged past $80 per barrel, marking a sharp rebound amid signs of shrinking Russian exports.
- European natural gas prices rose 4% over the past month, driven by a cold snap and Ukraine’s suspension of pipeline supplies for Russian gas.
The spike in energy prices has renewed fears about inflation, prompting economists to reconsider the trajectory of central bank policies. According to Aditya Bhave, deputy chief U.S. economist at BofA, “Inflation is stuck above target, with upside risks.”
Markets react to robust U.S. jobs report and dollar strength
The U.S. dollar’s rally, supported by a stronger-than-expected jobs report, has rippled through global financial markets, affecting equities, bonds, and currencies. Key movements include:
- The STOXX 600 dropped 0.7%, while Germany’s DAX fell 0.6%.
- The FTSE 100 declined by 0.4%, cushioned by a weakening British pound.
- In the U.S., S&P 500 futures fell 0.6%, with Nasdaq futures down 0.95%.
Treasury yields also climbed to their highest levels in over a year, with the 10-year yield hitting 4.79%. The rise in bond yields has added pressure to equities while increasing borrowing costs for businesses and consumers.
The strengthening dollar has compounded these effects, hitting a 26-month peak against a basket of major currencies. The euro dropped to $1.0216, and the pound slid 4.4% over two months to $1.215.
With inflation and economic data taking centre stage, the upcoming corporate earnings season will be closely watched for signs of resilience or strain in key sectors. Major banks, including Citigroup, Goldman Sachs, and JPMorgan, are set to report their results this week.
Got a reaction? Share your thoughts in the comments
Enjoyed this article? Subscribe to our free Newsletter for captivating articles, exclusive content, and the latest news.
