eyes once again on central banks

A week ends under the banner of purchases for the world financial markets, which witnessed the inauguration of Donald Trump, the White House and his first executive orders which suggest a less aggressive approach on duties than expected. In the background, but no less important, remains the appointment with the banks which saw the meeting in this octave of the Bank of Japan, while the next one will be the turn of the Federal Reserve and the ECB.

Word to the central banks

There European Central Bankafter the four reductions in interest rates decided in 2024, the easing of monetary policy is set to continue during the new year. At the meeting scheduled for January 30, insiders expect a further cut in the cost of money, which will most likely be by a quarter of a point, and analysts expect a second decline also at the March meeting. Also at the end of January there will be the meeting of Federal Reserve moving towards the decision to leave interest rates unchanged, after the three consecutive cuts made in the second half of 2024 brought the official rate into the 4.25-4.50% range. For the decision of Bank of England we will have to wait until the first week of February. According to analysts, the decline in inflation will push the central institution towards the path of easing, with an expected cut of 25 basis points. In Japan, the Bank of Japan raised interest rates to 0.50%, as widely expected, but predicted higher inflation and slower growth in the years ahead. It also warned that it will raise rates further, to levels not seen in Japan since 1995.

Macroeconomic data

In January, in the Eurozonethe S&P Global Manufacturing PMI Index rose to 46.1 points, up from 45.1 points last December, and to its highest level in eight months. On the other hand, the PMI Index relating to the services sector decreased to 51.4 points, from 51.6 points in December.
In the USAactivity in the US services sector remained expanding in January. The preliminary reading of the PMI services index, compiled by Markit, fell to 52.8, the lowest in the last eight months, from 56.8 in December, when it reached a 33-month high, with estimates at 56.5 . The figure therefore remained at a level associated with expansion, i.e. above 50 points; from July 2022 to January 2023 it had been in contraction. As for the US manufacturing activity index, it rose in January, signaling that the sector is now expanding. The data – drawn up by IHS Markit – which measures the trend rose, in preliminary reading, to 50.2 points, after 47.7 in December. Expectations were for a figure of 49.7 points.

The rise of the dollar and the implications for gold

The US dollar continued its upward trend in December, despite the Federal Reserve cutting rates by 25 percentage points. The FOMC (Federal Open Market Committee) raised its projections for US GDP growth and inflation for 2025, and the Fed’s dot plot highlights expectations for just two 25 basis point rate cuts in 2025. US yields rose along the curve and the USD Index rose to 108. The greenback, explains Michael Lok, Group CIO and Co-CEO Asset Management of Union Bancaire Privée (UBP), will continue to have a high profile in the first quarter, due to trade and tariff uncertainties, which will weigh on most other major currencies.
In contrast, the Swiss franc weakened slightly following the SNB’s (Swiss National Bank) rate cut by 50 percentage points, which brought the deposit rate to 0.50%.
THE’gold recorded a modest decline, reaching levels of around $2,600 per ounce in December. Silver also fell towards levels of around $30 per ounce. “We note that central bank gold purchases have increased again in recent months, with China making purchases for the second consecutive month. The sharp rise in 30-year bond yields is also constructive for both gold and silver, as it reflects concerns about inflation and debt sustainability,” the expert emphasizes.

The weekly performance of the stock markets

This week, the crown of increases was won by the Paris market which brought home an increase of around 3.8%. The Frankfurt Stock Exchange follows with +3.58% and the London Stock Exchange with +1.3%. Along the same lines, Milan +1.06% and Madrid +1.14%. The ending is also preparing for an uphill battle for the Wall Street stock market ahead of the Federal Reserve meeting next week.

The best and worst in Piazza Affari

Banking risk is the protagonist on Piazza Affari: MPS, the worst of the main basket, with a drop of 8% after the total public offer launched on Mediobanca which leapt to the top of the FTSE MIB with a +9%. Among the other banks, Unicredit rose (+4%) after the CEO Andrea Orcel returned to talking about both the potential benefits of an aggregation with Banco BPM and the desire to clarify with the German Government to carry forward the operation on Commerzbank. Among the best stocks of the week, Buzzi’s rally gaining over eight percentage points. Luxury follows, represented by the stocks Moncler +7% and Brunello Cucinelli +6%. On the downside, the energy sector loses ground, with Eni -3%, Enel 6% and Saipem -5%.