Market Turmoil Ahead: Trump’s Inauguration Looms Large
As the world prepares for President-elect Donald Trump’s inauguration, the US and global markets are bracing for impact. The S&P 500 index has nearly erased its post-election gains, weighed down by bond markets fearful of an inflation and interest rate resurgence.
Earnings Season Kicks Off
The fourth-quarter corporate earnings season is set to begin on Wednesday, with major players like BlackRock, Citigroup, JPMorgan, Wells Fargo, and Goldman Sachs scheduled to report. The same day, the December consumer price report will provide a crucial update on the inflation picture.
Inflation Fears Mount
The latest US employment report showed payrolls growth exceeding forecasts and the unemployment rate falling, alleviating Federal Reserve concerns about a softening labor market. However, this has also raised fears of a re-acceleration of above-target inflation, particularly with Trump’s plans for deportations, tax cuts, and tariff rises expected to impact the broader wage and price picture.
Treasury Market in Turmoil
The Treasury market has been running scared for over a month, with benchmark 10-year yields topping 4.8% early Monday for the first time since late 2023. This marks a 115-basis-point rise since the Fed began easing in September. Two-year yields have also vaulted to 4.4%, their highest since July.
Dollar Surges
The dollar index has hit its highest since 2022, driven by rising yields and inflation expectations. This has had a ripple effect on global currencies, with India’s rupee experiencing its biggest single-day decline in two years.
Sanctions and Oil Prices
The US Treasury’s recent sanctions on Russian oil producers and vessels have pushed oil prices to their highest since August. Analysts expect Russian oil exports to be severely hurt, leading top buyers China and India to source more oil from the Middle East, Africa, and the Americas.
Global Market Impact
Rising US yields and the widening US-China yield gap are also affecting markets in Asia, with China and Hong Kong stocks falling again on Monday. In Europe, British gilts are at the center of the storm, with UK 30-year government bond yields jumping to a fresh 27-year high.
Key Developments Ahead
Later on Monday, key developments to watch include the US December Federal budget, December employment trends report, and the New York Federal Reserve’s December survey of consumer expectations. Defence ministers from Poland, Germany, Britain, France, and Italy will also meet near Warsaw for talks on Ukraine, while NATO Secretary General Mark Rutte speaks at the European Parliament.
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