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Last week was marked by significant events that influenced global financial markets. The inauguration of President Donald Trump, who wasted no time addressing the world on various market-related issues, was among the highlights. Company earnings reports and the long-anticipated interest rate hike by the Bank of Japan also played a crucial role.
These events resulted in the US dollar weakening, while gold, US stocks, and the euro, along with most major currencies, saw gains against the dollar due to its decline.
US Dollar and Tariffs The US dollar faced weekly losses, with Friday’s closing levels reflecting this. The most impactful event on the dollar was President Trump’s comments on tariffs and protectionist trade policies, causing significant market volatility. In his inauguration speech, Trump stated, “We will reshape the trading system and make other countries pay tariffs and taxes to make our citizens wealthy.” He added that vast amounts of money would flow into the treasury from external sources and announced plans to declare a national emergency for the energy sector.
Trump also threatened an additional 10% tariff on US imports from China to curb the influx of fentanyl, a powerful painkiller. However, the dollar fell again by the end of the week due to speculation that Trump might delay these additional tariffs, as he did not sign an executive order imposing them on China and Europe. Trump himself stated on Fox News that he “does not favor using tariffs against China.”
Record Highs for Stocks Despite some negative aspects, company earnings reports for Q4 2024 were a key factor in driving US stocks up for significant weekly gains. Trump’s speeches on trade and economic issues also contributed. Netflix and the AI sector were notable contributors to the record highs in US stocks, with Netflix exceeding market expectations and Oracle announcing a $100 billion AI technology development initiative in collaboration with OpenAI and SoftBank Group.
Trump’s speeches, both during his inauguration and at the Davos Economic Forum, supported the stock market rally. At the forum, Trump said, “We will cut corporate taxes to 15% if you manufacture your products in the US, and we also want respect from other countries, including Canada. We don’t want them to make our cars, and we don’t need their lumber, oil, or natural gas.” He added, “I will sign a presidential memorandum directing the cabinet to use all powers to curb inflation,” and “I will ask Saudi Arabia and OPEC countries to lower global oil prices. Once prices drop, the war between Russia and Ukraine will end immediately, and I will also demand a rate cut.”
The Dow Jones Industrial Average rose by about 1,000 points compared to the previous week’s close, with the S&P 500 nearing its all-time high from early last month. The tech-heavy Nasdaq also recorded weekly gains of around 0.7%.
Trump Drives Down Global Oil Prices Oil suffered significant losses at the end of the week, declining for seven consecutive trading sessions. The most impactful event was Trump’s comments on new energy policies that could lead to a substantial increase in US production. Trump signed an executive order withdrawing the US from the Paris Climate Agreement on Monday, the same day he officially took office, and sent a formal letter to the UN notifying them of the US’s intent to exit the 2015 agreement aimed at reducing carbon and greenhouse gas emissions.
These actions align with Trump’s inaugural speech on Monday, which included plans to increase fossil fuel production in the US. Trump stated, “God saved me to make America great again, and we will drill into the rock baby, to refill the strategic reserves.”
These remarks dealt a severe blow to oil prices, sparking speculation of a significant increase in supply, naturally leading to price declines. Trump also pledged to intervene in the production policies of other major producers. He stated, “I will ask Saudi Arabia and OPEC countries to lower global oil prices. Once prices drop, the war between Russia and Ukraine will end immediately, and I will also demand a rate cut.”
Euro’s Weekly Gains The euro gained weekly, capitalizing on the weak US dollar, which was influenced by market expectations that Trump might delay imposing additional tariffs on US imports. The euro benefited from improved risk appetite in global markets, as Trump did not sign any executive orders related to tariffs and indicated to Fox News that he “does not favor using tariffs against China.”
The EUR/USD pair rose to 1.0491 from the previous week’s close of 1.0266, hitting a low of 1.0256 and a high of 1.0521 during the week ending January 25.
Federal Reserve and the New Week The Federal Reserve is widely expected to halt rate cuts at its January meeting, as inflation remains above the 2.00% target but continues to decline, coupled with the recent strength in the labor market. The Fed’s meeting on January 28-29 will likely focus on recent data, highlighting the need to maintain the current interest rate to support labor market improvements.
In contrast, market expectations suggest the European Central Bank may cut rates by 25 basis points, continuing its gradual approach to rate reductions throughout 2025. While some expect a 50 basis point cut, it is unlikely given the Eurozone’s 4.00% inflation rate, double the ECB’s target, and the highest wage growth in about 30 years, an environment not conducive to significant rate cuts.
The Bank of Canada is also expected to cut rates by 25 basis points on Wednesday, making it the most aggressive in rate cuts among major central banks since the current quantitative easing cycle began. Canada’s inflation rate was 1.8% in December, with declines in core readings excluding food and energy, paving the way for further rate cuts.
This week will also see earnings reports from major tech giants, led by Tesla, as well as Microsoft, Meta Platforms, and Apple. In the oil sector, Chevron and ExxonMobil will release their earnings reports.
