Markets Set for a Dramatic January as Fed and Trump Policies Emerge

As the global markets reopen following the New Year holiday, trading activity is expected to remain quiet until operations ramp up next week. Today's attention is directed towards the final PMI manufacturing figures from the Eurozone and the UK, as well as US jobless claims data. Tomorrow, the release of the US ISM Manufacturing Index may offer early indications of potential market volatility in the months ahead.

This month is particularly significant due to two critical developments. Firstly, important US non-farm payrolls and inflation statistics are expected soon, which may influence the Federal Reserve's decision regarding any pause in its policy easing measures later this month. After a hawkish rate cut by the Fed in December, the prevailing market sentiment indicates a slower pace of interest rate reductions anticipated for 2025.

Secondly, the inauguration of Donald Trump on January 20 is adding to market uncertainties—and possibly some clarity. The new administration is expected to announce at least 25 executive orders immediately, focusing on immigration, energy policies, and regulations surrounding cryptocurrencies. Trump's previous proposals to impose tariffs on imports from countries such as China, Mexico, and Canada could lead to higher costs for businesses and consumers, thereby introducing inflationary pressures. Consequently, the markets will be meticulously monitoring the development of these policies and their impact on global trade.

In the crypto markets, early reactions in the coming days could shed light on the prevailing risk sentiment as traders return from the holiday. Bitcoin's recent downturn from 108,368 has shown signs of slowing after testing the 55-day Exponential Moving Average (currently sitting at 92,441). A robust rebound from this level, combined with a break above the 99,866 resistance, would suggest that Bitcoin has completed its correction, setting the stage for a renewed upward trend. Conversely, sustained trading below the EMA could lead back towards the 38.2% retracement level between 49,008 and 108,368, at around 85,962 or lower, as further corrections materialize.

Asian Market Update

In Asia, Japan was on holiday. The Hong Kong HSI index fell by 2.40%, while the Shanghai SSE in China decreased by 3.05%. Conversely, the Singapore Strait Times index remained slightly up by 0.14%.

Wishing everyone a prosperous and healthy 2025!

China's Economic Performance

Recently, China's Caixin Manufacturing PMI fell to 50.5 in December, a decrease from 51.5 and below market expectations of 51.6, indicating a slowdown in the manufacturing sector's growth.

While both supply and demand experienced modest growth, external demand continues to be a significant challenge. Wang Zhe, a Senior Economist at the Caixin Insight Group, pointed out that external demand was described as "sluggish," and the job market is facing notable contraction. Sales prices have also shown weakness, resulting in declining market confidence.

The survey highlighted that notable downward pressures exist, stemming from subdued domestic demand and difficult external conditions, which have negatively affected profit margins. Additionally, the report suggested that prior policy stimulus measures have not yet produced consistent results, suggesting that more time is required to evaluate their effectiveness.

Looking Ahead

In the European session, important economic indicators will be released, including Swiss PMI manufacturing, Eurozone PMI manufacturing final, M3 money supply, and UK PMI manufacturing final. Later, the US will publish jobless claims, the final PMI manufacturing figures, and construction spending data.

USD/CAD Daily Outlook

The daily pivot points for USD/CAD are as follows: (S1) 1.4354; (P) 1.4394; (R1) 1.4442. The intraday outlook for USD/CAD remains neutral as the market continues to consolidate below 1.4466. While a deeper pullback cannot be discounted, the outlook remains bullish as long as the support level from 1.4177 holds. A breach above 1.4466, followed by sustained trading above 1.4391, would likely lead to a retest of the long-term resistance zone at 1.4667/89.

Conclusion

Overall, the current market climate is filled with anticipation as it braces itself for crucial economic data and significant policy announcements. Investors will need to remain adaptive and vigilant as these factors unfold, shaping the trajectory of the markets throughout January and beyond.

Markets, US, Policy