By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Stocks rebounded nicely on Friday amid relatively light news-flow to wrap up the week, as participants look forward to a data-heavy week ahead, highlighted by the January US jobs and CPI reports.
WHERE WE STAND – A risk-on end to the week with little by way of impactful news-flow. Frankly, after the chaos we’ve all had to endure over the last fortnight or so, I’m not sure we could’ve asked for much more!
Not only did stocks rally nicely across the board, albeit with a continued cyclical bent to proceedings, we also had President Trump touting (on Truth, of course) the Dow trading above 50,000 for the first time. If that wasn’t enough, Trump also threw out his own price target – 100,000 on the Dow by the end of his term (Jan 2029). Setting aside the litany of issues with that archaic average, and the rather ‘ambitious’ nature of such a target, those posts nevertheless underscore the existence of a ‘presidential put’ underpinning risk assets.
I’d argue strongly that one should not fight the President, who seemingly has an implicit aim to engineer higher asset prices, nor should one fight the Fed as the monetary backdrop eases, nor should one fight the Treasury as the fiscal impulse flips positive this year, nor should one fight what remain hefty inflows into DM equities. To my mind, the path of least resistance continues to lead clearly to the upside, in what remains a very constructive environment indeed for risk taking, with any dips still presenting buying opportunities.
That constructive environment was certainly not harmed by Friday’s only major data release, with the UMich consumer sentiment survey sending something of a goldilocks message. Not only did the headline metric rise to a 6-month high 57.3, but we also saw a chunky decline in both the year-ahead and 5-10 year inflation expectations figures.
Besides that, news- and data-flow was decidedly light, with little by way of fresh fundamental developments making themselves known. Consequently, outside of that solid rebound in the equity complex, recent ranges were largely well-respected, particularly in G10 FX and FI, which were relatively moribund to end the week. That remains the case to start the fresh trading week, as the pound shrugs off ever-increasing rumours regarding PM Starmer’s future (or lack of it), and with even the JPY surprisingly unreactive to PM Takaichi’s LDP winning a ‘supermajority’ in the lower house election – political certainty appears to trump any fiscal worries, for the time being at least.
We did, though, see precious metals continuing to trim losses, though I find it noteworthy that spot gold failed to reclaim the $5,000/oz handle into the close, and that spot silver ended the week beneath the $80/oz mark. The bull case for both remains a solid one, though failure to reclaim those levels does suggest that a period of consolidation could be on the cards for the time being. I’d argue that this would be no bad thing, given that treading water would allow time for fundamentals to catch up to the price once again, while also helping to dampen some of the speculative frenzy that we’ve seen in recent weeks.
LOOK AHEAD – A very data-heavy week awaits stateside, with the calendar highlighted by last month’s employment (Weds) and CPI (Fri) surveys, not forgetting the December retail sales report (Tues) being in the mix as well.
The employment report will be parsed closely for any further signs of labour market softness, especially after the disappointing ADP and JOLTS releases last week, though with the Fed in ‘wait and see’ mode for the time being, and with another employment report due before the March FOMC, it’s somewhat tough to imagine the data – barring a material downside surprise – significantly moving the needle in terms of the policy outlook. Similar applies to the CPI figures, which remain skewed lower by the impacts of last year’s government shutdown, and hence provide relatively little by way of signal.
Elsewhere, the calendar is notably lighter, with only Q4 GDP figures from here in the UK, and the eurozone, of any particular note. The former will likely see something of a mechanical rebound as a result of JLR production resuming post-cyber-attack, while the latter is a 2nd estimate and shouldn’t see a significant revision from the preliminary read.
Meanwhile, a chunky week of Treasury supply awaits with 3-, 10- and 30-year auctions due midweek, and a busy calendar of central bank speakers also awaits. Earnings season continues too, including notable releases from the likes of Coca-Cola (KO), McDonald’s (MCD) and Cisco (CSCO); thus far, SPX blended earnings growth for Q4 25 is running at 13.0%, on track to be the 5th consecutive quarter of double-digit growth, and further reinforcing the bull case for risk.