A look at the day ahead in U.S. and global markets from Mike Dolan
As world stocks got a fresh lift, the U.S. dollar has retreated to its lowest of the year so far on a mix of reversing U.S. Treasury yields and another delay in tariff implementation.
Multiple cross-currents have hit macro markets this week – a whipsaw effect from two big U.S. inflation reports, Washington’s push for Ukraine peace talks alongside threats of sweeping tariffs and another heavy schedule of corporate earnings and Treasury debt sales.
But as Friday trading gets underway, the net impact on the dollar index has been to sink it to its lowest in almost two months – driven in part by a benign take on January’s U.S. producer price report and a Ukraine-related rally in the euro.
Even after U.S. President Donald Trump teed up his latest plan for reciprocal tariffs as “the big one”, it transpired these won’t hit early.
Thursday’s directive stopped short of imposing the tariffs, instead kicking off what could be weeks or months of investigation into the levies imposed on U.S. goods by other trading partners and then devising a response.
The dollar, which has typically jumped on tariff threats over recent months, fell back to January levels against the euro and yuan, two-month lows on the Canadian dollar and 10-day lows against Mexico’s peso.
The greenback was also undermined as Treasury yields completely reversed their spike after Wednesday’s hot consumer price inflation report – mainly because details of yesterday’s producer price report painted a different picture.
As flagged by Federal Reserve Chair Jerome Powell the previous day, components of the PPI are important for the calculation of the Fed’s favored personal consumption expenditures (PCE) inflation gauge. A number of these related to healthcare and airline fares actually fell sharply last month.
That led Fed futures to marginally increase bets on Fed easing this year, pulling in the likely date of the next cut to September from October.
The biggest impact was to knock long-term Treasury yields back lower, despite what was seen as tepid demand at the 10 and 30 year debt auctions this week.
Along with the thrust from another robust corporate earnings season, the combination saw Wall Street stocks rally to within a whisker of new records on Thursday – led by big gains for megacaps Tesla, Nvidia and Apple.
Futures held most of those gains overnight, with traders awaiting the release of U.S. retail sales and industrial production data later on Friday.
Tech was back in vogue overseas too, along with the artificial intelligence buzz.
Chinese tech stocks resumed their bullish rally on Friday to clock their best winning streak in over two years as DeepSeek’s AI breakthrough continued to encourage buyers.
The Hang Seng Tech Index jumped 5.6% to a three-year high at close, bringing the week’s advance to 7.3% and recording a fifth consecutive week of gains. The rally was helped after a Reuters report that Chinese President Xi Jinping will chair a symposium attended by Jack Ma and other Chinese business leaders.
Also encouraged by the likely longer timeline on U.S. tariff implementation, the broader Hang Seng index jumped 3.7% and the Chinese mainland index gained almost 1%.
In European stocks, another week of stellar gains was also sustained on Friday.
Unusually, given the trends of recent years, record high European stocks have far outstripped Wall Street so far this year – on a mix of more attractive valuations, European interest rate cuts and now talks to end the Ukraine war.
Next week’s German elections are also holding out some hopes for a subsequent easing of the country’s strict fiscal rules and a possible boost to government spending there down the line.
Goldman Sachs raised its 12-month price forecast for the broader STOXX 600, citing factors such as a lower risk premium, reduced energy prices, improved consumer confidence, and a recovery of economic growth as the key drivers.
The euro zone economy grew a touch faster than initially thought in the last quarter of 2024, according to data released on Friday.
The Ukraine moves saw crude oil prices briefly tumble to their lowest of the year this week, although they stabilised earlier today.
More pointedly for Europe, natural gas prices have been dragged back sharply from two-year highs. The benchmark Dutch gas contract retreated to its lowest in more than two weeks, helped by Ukraine news and talks over a loosening of European gas storage targets.
And Europe’s corporate earnings season has also lifted the mood. French luxury group Hermes rose 2% on Friday after it reported an 18% rise in fourth-quarter sales, lifting the wider luxury goods sector.
Key developments that should provide more direction to U.S. markets later on Friday:
* US January retail sales, industrial production, import and export prices, December business/retail inventories
* Dallas Federal Reserve President Lorie Logan speaks
* US corporate earnings: Moderna
* Munich Security Conference begins
(By Mike Dolan, editing by Christina Fincher; mike.dolan@thomsonreuters.com)
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