Good morning,
Think the humble spoon has reached its design pinnacle? Think again. A Japanese company has unveiled the Electric Salt Spoon, a gadget that uses a mild electric current to make food taste saltier than it really is. At $130, this hi-tech utensil promises to help people cut back on sodium by satisfying salt cravings with less salt. It’s not dishwasher-safe and works best with soups and sauces, but if it helps reduce global salt overconsumption – linked to millions of deaths annually – it might just be worth hand-washing.
Last Week
The year kicked off with the same dollar strength that dominated 2024, driven by a mix of geopolitical and economic factors. Trump’s tariff threats appear to be more than bluster, with many countries responding by sidestepping the dollar entirely. India now conducts 90% of its trade with Russia in rupees, while petro states like Saudi Arabia are selling oil in alternative currencies. Meanwhile, after 25 years of talks, 31 nations agreed to form the world’s largest trade bloc, linking the EU and Mercosur, which would account for 25% of global GDP if ratified. With US job creation smashing expectations and Treasury yields climbing, markets are bracing for a slower pace of rate cuts, keeping the dollar firmly in focus.
Sterling tumbled midweek, down 1.1% to $1.234 – its weakest since April – as the Dollar strengthened on robust U.S. economic data and inflation concerns. The ISM services PMI showed price pressures building in the U.S., sending bond yields and the greenback higher while reducing expectations of a Federal Reserve rate cut. Meanwhile, UK borrowing costs surged, with 10-year gilt yields hitting 4.82%, their highest since the 2008 financial crisis. The sell-off in UK government bonds reflects investor unease over the Labour government’s fiscal outlook amidst a flatlining economy and stubborn inflation. Comparisons to last year’s market turmoil under Liz Truss are unavoidable, as the FTSE 250 fell 2% and sterling faced broad-based selling. The toxic combination of rising debt and economic stagnation leaves sterling under pressure.
The Chinese yuan slipped to a 16-month low of Rmb7.34 against the dollar this week, reflecting mounting concerns over potential tariffs from the incoming Trump administration. Markets are increasingly uneasy about the economic fallout for China if steep tariffs on its exports materialise. Speculation is growing that the People’s Bank of China may weaken the currency further to cushion the blow to its export-driven economy, particularly as domestic consumer demand remains subdued. Despite the PBoC maintaining a steady fixing rate, selling pressure on the yuan highlights fears that the world’s second-largest economy could struggle to maintain its growth momentum. As Trump’s inauguration nears, the yuan’s trajectory could become a barometer for trade tensions in the months ahead.
This Week
US inflation remains stubbornly elevated as the Federal Reserve grapples with slow progress towards its 2% target. Heading into 2025, policymakers are seeing inflation converge closer to 3%, a far cry from the easing hoped for by year-end. November’s CPI report offered a glimmer of optimism, with shelter and broader services categories showing signs of cooling. However, a meaningful slowdown is more likely to materialise in early 2025. Analysts expect a 0.3% month-on-month CPI rise, softer than the Cleveland Fed’s Inflation Nowcast prediction of 0.4%. Annual CPI is estimated at 2.9%, up from November’s 2.7%, while core CPI remains steady at 3.3%. With the Fed’s cautious stance already priced into markets, a hot CPI print may have limited impact, but a miss could trigger a sharp dollar selloff.
The pound faces a critical test next week with a wave of UK data that could either halt its slide or deepen the losses. The spotlight is on Wednesday’s CPI release, where another increase from November’s 2.6% y/y could diminish hopes of a February rate cut by the Bank of England. Core and services inflation metrics will also be closely scrutinised. However, investors may hold fire until Thursday’s GDP figures reveal if growth rebounded in November, easing stagflation fears. A GDP uptick, paired with strong inflation data, might provide a lifeline for sterling. Yet, Friday’s retail sales numbers for December will offer a reality check. Any weakness during the crucial Christmas trading period could further undermine the pound, leaving its recovery prospects hanging by a thread.
Key Events
Tuesday 14th January
13:00 US PPI
Wednesday 15th Jan
07:00 UK CPI
13:30 US CPI
Thursday 16th Jan
00:30 Australian Unemployment Rate
07:00 UK GDP
13:30 US Retail Sales & Unemployment Rate
Friday 17th Jan
07:00 UK Retail Sales
Have a great week,
The Garton Team.