As investors awaited President Trump’s address at the World Economic Forum, there was palpable tension due to anticipation of significant announcements that could potentially sway the markets.
Amidst this anticipation, the S&P 500 index reached new heights, setting a fresh record, while WTI crude oil took a dive, ending the day nearly 2% down.
Here’s a roundup of today’s headlines and the financial market’s responses:
Headlines:
- Visitor arrivals in New Zealand bounced back by 1.0% in November, recovering from a stagnation in the previous month.
- Japan witnessed a noteworthy narrowing in its trade deficit, decreasing from 0.39 trillion JPY to just 0.03 trillion JPY, against a forecasted 0.51 trillion JPY as exports soared to record levels.
- The U.K.’s CBI industrial order expectations index saw a marginal improvement, moving from -40 to -34 in January, slightly better than the expected -35.
- In Canada, retail sales remained unchanged for December, defying a forecasted 0.2% rise and slipping from a previous 0.6% increase. Core retail sales dropped by 0.7% month-on-month, against forecasts of a 0.1% increase.
- The U.S. reported initial jobless claims at 223,000, closely aligning with the forecast of 221,000 and up from 217,000 previously.
- Eurozone consumer confidence saw a modest rise from -15 to -14 in December, meeting expectations.
- EIA crude oil inventories showed a decline of 1.0 million barrels, slightly overshooting the expected 0.1 million but below the previous decrease of 2.0 million.
- President Trump mentioned the possibility of putting pressure on OPEC+ to ramp up production and reiterated intentions to impose tariffs on Mexico and Canada by February.
- Additionally, Trump put his signature on an executive order to form a committee tasked with exploring the creation of a national digital asset reserve.
Broad Market Price Action:
During the World Economic Forum in Davos, markets were on edge as they awaited President Trump’s speech. Trading drifted side to side with a slight lean towards risk aversion seen in Asian and London sessions.
WTI crude oil got a temporary boost from a larger than anticipated drop in EIA crude inventories, though eventually plummeted after Trump’s comments about ending the Russia-Ukraine conflict by reducing oil prices.
Treasury yields, which had been climbing, faltered once Trump mentioned the possibility of pushing the Fed towards more interest rate cuts. Gold, which had seen some losses due to increased risk appetite, managed to regain ground following the dollar’s weakness.
Bitcoin made a notable leap to the $106,000 mark in response to Trump’s executive order exploring a national digital asset stockpile. Meanwhile, U.S. equities responded favorably to Trump’s announcements, with the S&P 500 setting a new record high and the Nasdaq also wrapping up at its highest since mid-December.
FX Market Behavior: U.S. Dollar vs. Majors:
The dollar exhibited erratic movements during the Asian trading session as market participants repositioned themselves ahead of Trump’s speech at the WEF. Although the dollar showed some strength at the London open, it struggled to hold onto those gains.
A broader sell-off in the dollar ensued following Trump’s indication of wanting further rate cuts from the Fed, despite U.S. initial jobless claims coming in as expected. This weakness was especially visible against the British pound and the Australian dollar, with declines of 0.31% and 0.27% respectively.
The USD/JPY pair was notably down by 0.20%, driven by both domestic factors and positioning ahead of the upcoming Bank of Japan decision. The Swiss franc showed marked resilience, with USD/CHF closing nearly unchanged at +0.03%.
Despite Trump reiterating tariff plans set for February 1 and unimpressive Canadian retail sales, the Canadian dollar displayed relative stability, with USD/CAD dipping just 0.03%, suggesting markets had largely accounted for this policy direction.
Upcoming Potential Catalysts on the Economic Calendar:
- The Bank of Japan’s monetary policy decision is looming.
- French flash manufacturing and services PMI will be released at 8:15 am GMT.
- Germany’s flash PMI data is due at 8:30 am GMT.
- Eurozone flash manufacturing and services PMI comes at 9:00 am GMT.
- The U.K. follows with its flash manufacturing and services PMI at 9:30 am GMT.
- ECB Head Christine Lagarde will speak at 10:00 am GMT.
- The U.S. will release flash manufacturing and services PMI at 2:45 pm GMT.
- U.S. existing home sales data will be announced at 3:00 pm GMT.
- The revised U.S. Michigan consumer sentiment index will also be unveiled at 3:00 pm GMT.
Anticipate heightened volatility among yen pairs today as the BOJ prepares to announce its interest rate decision accompanied by a press conference during the Asian trading hours. Following that, global focus will shift to the release of flash PMI readings from the eurozone, the U.K., and the U.S. for January. Don’t forget to try our new Forex Correlation Calculator when planning your trades!
