Weekly Commentary

Last week, U.S. indices showed negative dynamics: the S&P 500 dropped by 1.9%, while the Nasdaq fell by 2.2%. In contrast, the European index EUR STOXX 50 gained 2.2%. Brent crude oil prices increased by $3.3, closing at $79.8.

The earnings season for Q4 has started in the U.S., traditionally led by the largest banks. It is expected that companies in the S&P 500 index will report a record-high profit growth of 11.9%—the highest in the past three years. Technology and financial sectors are anticipated to lead this growth.

The Federal Reserve's tightening approach to monetary policy was highlighted in the minutes of its recent meeting. Firstly, the Fed believes the economy is either at or near the point where a slowdown in easing is justified. Second, expectations for the number of rate cuts have been revised down from four to two. Third, nearly all participants noted increased risks of accelerating inflation, driven by high consumer spending, a strong labor market, and rising real wages, which may require maintaining rates at the current level. Lastly, risks to achieving inflation and employment targets now appear balanced, whereas previously, higher risks were emphasized on the labor market side.

The U.S. labor market in December exceeded expectations: the number of new jobs increased by 256,000 (forecast: +164,000), and the unemployment rate fell to 4.1% (forecast: 4.2%). Hourly wage growth was +0.3% MoM (in line with expectations) and +3.9% YoY (forecast: +4.0%). On the positive side for inflation, the strong labor market has not yet altered the trend of slowing hourly wage growth, which declined from November’s +0.4% MoM. However, data from the University of Michigan on inflation expectations indicates that consumers are beginning to factor in risks related to tariffs and fiscal stimulus: 1-year inflation expectations rose from 2.8% to 3.3%, while 5-year expectations increased from 3% to 3.3%.

Deflation in China continues: in December, consumer prices (CPI) were flat at 0% MoM (in line with expectations) and +0.1% YoY (also in line with expectations). The main deflationary trends are driven by falling prices for food (-0.5% YoY), consumer goods (-0.2% YoY), household appliances (-3.3% YoY), automobiles (-4.2% YoY), and rents (-0.3% YoY). This reflects an oversupply in the domestic market, overproduction, and a downturn in the real estate market. Notably, the services sector recorded a slight increase of +0.5% YoY, while core CPI rose by 0.4% YoY.

Key events of this week:

• 14.01.2025: U.S. Producer Price Index (PPI) data;
• 15.01.2025: Consumer Price Index (CPI) data for the U.S. and the U.K.;
• 16.01.2025: U.S. retail sales data;
• 17.01.2025: Consumer Price Index (CPI) data for the EU.

Companies reporting this week:

• 15.01.2025: JP Morgan, Wells Fargo, Goldman Sachs, Citigroup, BlackRock;
• 16.01.2025: UnitedHealth, Bank of America, TSMC, Morgan Stanley;
• 17.01.2025: Schlumberger, Citizens Financial Group, Fastenal, Regions Financial Corporation.