Good morning,
Sol Campbell’s latest move is stirring things up again—this time, not on the pitch but in a Google Pixel ad that has Tottenham fans seeing red. The Arsenal legend draws cheeky parallels between switching phones and his infamous 2001 transfer from Spurs to Arsenal, complete with digs about “greener grass” and “big moves paying off.” The ad has gone viral, with Arsenal fans reveling in the “outrageous s***housery” and Spurs supporters less amused.
Last Week
The UK economy is grappling with a grim start to 2025, as stagflation fears and waning business confidence weigh heavily on Sterling. Despite historically low unemployment and resilient wage growth last summer, Chancellor Rachel Reeves’ decision to raise employer national insurance contributions has exposed vulnerabilities in the jobs market. Hiring at small and medium-sized firms fell sharply in late 2024, with November seeing a 1.7% drop in full-time roles, ending months of growth. Compounding matters, a global bond sell-off has pushed borrowing costs higher, dragging the pound to $1.215 by Monday—down 2.8% this year. Business confidence has plummeted, with domestic sales growth hitting a three-year low. Reeves faces mounting pressure to outline a growth strategy as the UK teeters on the edge of stagflation.
US markets faced turbulence on Monday as robust jobs data reinforced expectations that the Federal Reserve will keep interest rates elevated. Long-term Treasury yields climbed to their highest level since late 2023, pushing the tech-heavy Nasdaq Composite down 0.4% after a volatile session. The broader S&P 500 eked out a 0.2% gain, while the dollar index surged to a 14-month high, briefly driving the euro below $1.02 and nearing parity for the first time since 2021. Meanwhile, inflation dynamics sent mixed signals. Headline US consumer prices rose to 2.9% annually in December, but a drop in core inflation to 3.2% raised hopes of eventual rate cuts. Markets remain divided on the Fed’s next steps as economic data continues to steer sentiment.
The Australian Dollar is off to a strong start in 2025, ranking as the second-best-performing G10 currency thanks to a buoyant domestic economy and improving global sentiment. Data released last week showed Australia’s labour market surpassing expectations, with December employment rising by 56.3K—nearly quadruple the forecasted 15K. This marks a sharp acceleration from November’s 28.2K increase and reinforces confidence in the country’s economic resilience. Stability in Chinese economic news, a key driver for Australia’s trade prospects, has also bolstered the currency. With global investor sentiment turning bullish and domestic data continuing to surprise to the upside, the Australian Dollar appears poised to extend its rally into the first quarter. Markets are now watching for hints of policy shifts from the Reserve Bank of Australia amidst the strong growth outlook.
This Week
Donald Trump’s inauguration as US president on Monday sets the stage for a volatile week in financial markets, with investors seeking clarity on his policy agenda. The dollar has gained momentum recently, buoyed by robust labour market data and expectations that the Federal Reserve will tread cautiously on rate cuts, despite investor bets on a 40bps reduction by year-end. Trump’s pledges of corporate tax cuts and deregulation have heightened concerns about persistent inflation, even as December CPI figures came in softer than anticipated. Market participants are watching Trump’s inaugural address closely, with rising FX option implied volatility signalling anticipation of significant market moves. A hawkish tone on tariffs could boost Treasury yields and strengthen the dollar, though equities might face pressure amidst renewed inflation fears. Netflix’s earnings on Tuesday will add further complexity to the week.
Friday’s preliminary S&P Global PMIs for January are set to shape the outlook for the euro and pound, both of which are under pressure. The euro has struggled as monetary policy expectations between the ECB and the Fed diverge, while the pound is weighed down by weak UK economic data and lingering political uncertainty. Recent UK figures—soft December inflation, poor retail sales, and a GDP contraction—underscore economic fragility. Markets expect the ECB to cut rates by 95bps and the BoE by 60bps this year, outpacing the Fed’s expected reductions. Weak PMIs could deepen this policy gap, amplifying losses for both currencies. Meanwhile, US PMI data may have less impact, as dollar traders focus on signals from Trump’s inauguration and the broader Fed outlook.
Key Events
Tuesday 21st January
07:00 GBP Claimant Charge
13:30 Canadian CPI
21:45 New Zealand CPI
Thursday 23rd January
13:30 Canadian COre Retail Sales & US Unemployment Claims
Friday 24th January
08:15 German PMIs
08:30 French PMIs
09:30 UK Manufacturing & Services PMI
14:45 US Manufacturing & Services PMI
Have a great week,
The Garton Team.