This week's market activity was driven by President Trump's inaugural actions, particularly his stance on tariffs. While initial expectations leaned towards protectionist measures, Trump opted to hold off on tariffs against major trading partners, easing market tensions and pushing the S&P 500 to record highs. The US dollar faced headwinds due to Trump's anticipated impact on inflation. Meanwhile, the Bank of Japan implemented a 25bps rate hike, and Asia Pacific markets prepared for month-end data releases from Japan and China.
Markets had a bit of a roller coaster ride this week thanks to the incoming Trump administration in the US. Markets got some of what they expected while they also received a fair amount of shocks to keep market participants guessing.
Even though President Trump talked tough about protectionist trade policy during his campaign, he decided not to impose tariffs on major trading partners this week. On Thursday night, he eased tensions with China by saying he’d prefer not to use tariffs against them. This sparked a positive reaction in the markets that pushed the S&P 500 to fresh all-time highs.has risen 2% this week , putting it on course for the best start for a new president since Ronald Reagan took office in 1985.
The Bank of Japan should watch service prices, which may rise due to better household incomes. The job market remains tight, with unemployment at 2.5%. This will be interesting after the Bank of Japan’s rate hike this week, with hope that data continues to trend in a positive direction. The US Fed cut rates by 100 basis points in late 2024 and now wants to see signs of economic weakness and lower inflation before making more cuts. Fed policymakers also remained concerned about the impact of potential tariffs on inflation as indicated by the previous meeting minutes.
GDP data for the Euro Area will also be released which should confirm the sluggish growth mentioned as the reason for further rate cuts. The Euro Area may also be suffering from a weaker winter as well before growth improves which leads me to believe that a rate cut is necessary.The Dollar Index struggled this week after breaking below the ascending trendline on Monday in the aftermath of the Presidential Inauguration.The index has now bounced off a key area of support at the 107.
TARIFFS MARKETS US DOLLAR FED ECB BANK OF JAPAN ASIA PACIFIC ECONOMIC OUTLOOK
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