Markets Poised for High-Stakes January Amid Fed and Trump Policy Shifts

As global markets return from the New Year holiday, trading activity is currently low and is expected to remain muted until next week when traders and investors are back to regular operations. Today’s market focus is on the final readings of PMI manufacturing data from the Eurozone and the UK, along with the release of US jobless claims. Anticipation builds for tomorrow’s US ISM Manufacturing Index, as it could provide an early indication of potential market volatility in the upcoming weeks.

January holds significant importance due to two primary developments. Firstly, upcoming US non-farm payrolls and inflation data are highly anticipated and could influence the Federal Reserve's decision on whether to pause its policy easing cycle later this month. After the Fed’s hawkish stance during the December rate cut, there are expectations for a much slower pace of reductions throughout 2025.

Secondly, Donald Trump’s inauguration on January 20 raises market uncertainties. The new administration is likely to unveil at least 25 executive orders promptly, focusing on areas such as immigration, energy policy, and even cryptocurrency regulation. Trump's intention to impose tariffs on imports from countries like China, Mexico, and Canada could lead to inflationary pressures, raising costs for businesses and consumers alike. As details of the policies are revealed, markets will be closely monitoring the implications for global trade.

In the crypto market, reactions in the coming days could offer insights into shifting risk sentiments as traders return from the holiday break. Bitcoin has shown some resistance after declining from its peak of 108368. Its recent pullback seems to be leveling off after reaching the 55-day Exponential Moving Average (now at 92441). A strong recovery from this point, followed by a breakout above 99866, would suggest that Bitcoin has completed its correction phase and may commence a new upward trend. Conversely, if it continues to trade below this EMA, it might head to a key retracement level of 38.2% from 49008 to 108368 at 85962, or possibly lower, as further corrections take hold.

In Asia, trading activity is mixed. Japan was on holiday, while the Hong Kong HSI index has seen a decline of -2.40%, and the Shanghai SSE in China is down -3.05%. On the other hand, the Singapore Strait Times index is slightly up, showing an increase of 0.14%.

Looking forward, key economic indicators are set to be released in the European session, including the Swiss PMI manufacturing data, final Eurozone PMI manufacturing readings, and M3 money supply data, along with the final UK PMI manufacturing figures. The US will later release jobless claims, PMI manufacturing final data, and construction spending figures.

China’s Economic Challenges Amid Falling PMI

The manufacturing sector in China is facing headwinds, as indicated by the latest Caixin Manufacturing PMI, which fell to 50.5 in December from 51.5 the previous month, and was below market expectations of 51.6. This indicates a slowdown in growth.

According to Wang Zhe, a senior economist at Caixin Insight Group, although supply and demand showed modest expansion, external demand continues to exert considerable pressure on the sector. Zhe pointed out various challenges, including a “notable contraction” in the job market, weak sales prices, and declining market optimism that led to “prominent downward pressures” on the economy. The report indicates that earlier policy stimulus measures have yet to deliver consistent results, suggesting that further time may be needed to evaluate their effectiveness.

Current Market Indicators

Daily updates on economic indicators are essential to gauge the market's pulse. The following events are positioned in the upcoming economic schedule:

• 01:45 GMT: Caixin Manufacturing PMI (Dec): 50.5
• 08:30 GMT: Manufacturing PMI (Switzerland, Dec) - Forecast: 48.3
• 09:00 GMT: Eurozone Manufacturing PMI (Final) - Forecast: 45.2
• 13:30 GMT: Initial Jobless Claims (for Dec 27) - Forecast: 223K
• 15:00 GMT: Construction Spending M/M (Nov) - Forecast: 0.30%

Markets, Economy, Trade