News Recap • Week 2 2025

The US continued to show who’s boss this week and I’m not just talking about Donald Trump’s expansionist rhetoric. Perversely enough, the strength of the US economy sent its stock market lower. Much more on that below.

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Market recap

Equities

🇺🇸 The S&P 500 fell 1.94% for the week after stronger-than-expected economic data raised concerns about inflation and higher rates in the US. The index closed yesterday at its lowest level since November 5 although it is still just 4.5% off of its record high set in early December. The Nasdaq Composite fell 2.34%.

• 🇪🇺 STOXX 600 rose 0.65% despite small inflation upticks in Germany and the eurozone at large.
• 🇫🇷 The French CAC 40 outperformed most other markets with a 2.04% gain.
• 🇩🇪 The DAX wasn’t far behind though, jumping 1.55% for the week.
• 🇬🇧 FTSE 100 eked out a gain of 0.3%.
• 🇨🇳 Hang Seng continued its struggles with a 3.52% decline for the week, now down 18% from the peak in October. The CSI 300 held up a lot better but still ended the week 1.13% lower.
• 🇮🇳 India’s Nifty 50 lost 2.39% and made its lowest weekly close since June last year. The index is down 11% from its all-time high in September.
• 🇯🇵 Nikkei 225 fell 1.77% after a pretty volatile week. The Japanese market is still searching for direction and is currently unchanged from 10 months ago.

Currencies & Commodities

• The DXY gained another 0.66% on the back of more economic data showing continued strength in the US economy.
• USD.GBP rallied 1.74% to 0.819, its highest level since November 2023.
• USD.CNH eked out a small gain after temporarily losing some strength against the Chinese yuan earlier in the week.
• Gold jumped 1.95% on the back of increased inflation fears, once again approaching $2,700.
• The crypto market is down 5.4% as of Sunday afternoon (CET) in what was a risk-off week across markets. Bitcoin is holding up well, down less than 4% at $94,500. Ethereum and Solana are both down double digits. Ripple is showing significant strength with a 4.6% gain though.

Other

• The VIX spiked 21.14% to 19.54 amidst a slew of macro data, its highest weekly close since early November last year.
• The 10-year US treasury yield rallied 3.5% to 4.763%, the highest level since its peak at 5% in the fall of 2023.

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US job market much hotter than expected

The biggest story of the weak was undoubtedly the highly anticipated US non-farm payrolls report for December which came out on Friday. The number shows how many new jobs have been created outside of the agriculture sector.

The consensus forecast among economists was for 155,000 new jobs to be added. However, the number came in much higher than expected at 256,000. The number was even higher than the 212,000 jobs created in November which was also a big beat.

Furthermore, the unemployment rate ticked lower to 4.1%. Consensus was for the rate to remain unchanged at 4.2%.

What it means

Central banks around the world have been battling inflation in the past couple of years. They’ve been raising interest rates to slow down demand and the economy at large.

Prices, and therefore inflation, are largely determined by the supply-demand balance in the open market. Simply put, when consumers are employed, they’re able to spend. Thus, the stronger the job market and the lower the unemployment rate, the higher the demand for goods and services. Higher demand puts upward pressure on prices, aka inflation. At least in theory.

Higher inflation, or even just the fear thereof, will likely cause the US Federal Reserve to keep rates higher for longer. This is the part that had the biggest impact on the market.

The market reaction

Financial markets had an immediate and strong reaction to the jobs number. Here are some highlights.

• US government bond yields rallied on the outlook of higher rates and a strong US economy.
• The US dollar jumped alongside yields.
• The equity market moved in the opposite direction. Risk assets typically underperform when investors can get a higher, risk-free yield in the form of government bonds. Crypto took a big hit as well.

The one bright spot

In this upside-down perspective on the economy, the one “bright spot” in the report was that wages grew slightly less than expected at 3.9% year-over-year. This should at least dampen the Fed’s fear of inflation picking back up.

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Eurozone inflation ticked up, as expected

The latest inflation reading from the eurozone showed 2.4% year-over-year, in line with expectations. It increased for the third straight month, from its low point of 1.7% in September and 2.2% in November.

Core inflation, which strips out more volatile categories, landed at 2.7%. It’s been stuck between 2.7% and 2.9% since April last year.

Services inflation remains sticky as well, coming in at 4% where it’s basically been since November 2023.

Speaking of higher inflation, the latest update out of Germany did surprise to the upside. Inflation came in at a 2.8% annual rate in December, higher than the 2.6% expected. Prices rose 0.7% on a monthly basis.

Similar to the overall eurozone, inflation in Germany bottomed in September at 1.8% before rebounding to 2.4% in October and November.

So while the eurozone headline number is still close to the ECB’s 2% target, other measures are a little more concerning. If inflation continues to go higher, it also reduces the likelihood of more rate cuts to come.

That latter point also seemed to get reflected in the European bond market. The 2-year and 10-year yields both spiked more than 5.5% for the week, now sitting at 2.306% and 2.576% respectively. They have now rallied 22% and 27% since the bottom in early December. A big chunk of the gains this week came on Friday though, as bond yields seemingly jumped on the back of the US jobs report.

The stock market didn’t seem too worried about the higher rates though. The German DAX index rallied 1.56% on Monday and extended its gains on Tuesday. It finished the week 1.55% higher. The broad European STOXX 600 index gained 0.65%.

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China’s economic woes continue

Another week, another economic blow for China. This time we got some important data points and a concerning move from the Chinese central bank.

First up, inflation. China’s consumer prices only rose 0.1% year over year in December, less than the 0.2% rise in November but in line with expectations.

Wholesale prices continued to do even worse, this time with a 2.3% decline year over year. It was slightly less bad than the 2.4% decline expected, but still not good. And it marked the 27th straight month of deflation.

Because while lower prices may sound nice, it spells big trouble for a growth economy like China’s. Stagnating or declining prices speak to slowing demand and poor growth.

One of the central bank’s recent initiatives to boost the economy has been massive bond buybacks with the aim of pumping some liquidity into the system.

These purchases have contributed to a big decline in bond yields which fell to new record lows last week. The 10-year yield dipped below 1.6% for the first time ever after dropping almost 20% in just four weeks, a very significant move for the bond market.

This has simultaneously weakened the Chinese yuan to a concerning level. The yuan currently trades at 7.362 against the dollar, a level it hit in October 2022 and September 2023. If it drops much further, below 7.375 to be exact, it will be the lowest level since 2007 where the Chinese economy (and the American for that matter) was in a completely different place.

A weaker yuan and lower bond yields make it less and less attractive for investors to keep capital in China, especially as yields in the US have gained additional traction in recent weeks.

The Chinese central bank confirmed what many analysts expected this week. It wants to defend the currency and do so immediately.

First step was to announce the issuance of a record 60 billion yuan ($8.2 billion) in central bank bills on January 15. Next up, the central bank stopped its bond purchases. These steps may have stopped the yuan’s freefall, for now, but China will likely have to do more than that to really shore up its currency.

The country appears to be stuck between a rock and a hard place though. Authorities want to increase liquidity to boost the slowing economy but they can’t do that without further devaluing the yuan. Something has to give. And that something may have to be the US dollar.

I’m very curious to see how Donald Trump will tackle the strengthening dollar when he takes office. It could definitely become a key part in negotiations with China. The US has the ability to weaken the dollar, thus strengthening the yuan in relative terms; But what does Trump want in return?

Elite level game of politics about to unfold. Get your popcorn ready.

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In other news

Macro

• The US Bureau of Labor Statics published its latest Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. New job openings rose to 8.09 million in November, well above the 7.7 million expected. It was also significantly higher than the 7.83 million reported in October. Next, the ISM Services PMI report showed an increase from 52.1 in November to 54.1 in December. Consensus among analysts was 53.3 ahead of the report. Anything above 50 shows expansion. The New Orders index rose from 53.7 in November to 54.2 in December while the Business Activity index increased from 53.7 to 58.2. A stronger economy increases the risk of inflation picking back up and decreases the odds of further rate cuts. With that, US treasury yields rallied, the dollar jumped, gold traded lower, and risk assets like US equities and crypto fell.
• Canada Prime Minister Justin Trudeau announced his resignation on Monday after a long period of wavering support. He will stay on as PM until a new leader is selected through “a robust nationwide, competitive process”. The Canadian parliament will suspend its activity until March 24 when a vote of confidence is carried out.
• Rumors spread that Donald Trump’s tariff policy won’t be as aggressive as previously expected. Specifically, the Washington Post cited three sources saying that Trump would only look to apply tariffs in ‘critical sectors’. However, Trump himself was quick to debunk the story in a post on Truth Social. Many people are speculating that Trump is using the threat of massive tariffs as a negotiation tactic and never really intended to add 10, 25, or 50% tariffs on all imports from Canada, Mexico, and China as he promised. If that’s the case, it’s obvious why he doesn’t want stories like this one spreading. Or maybe the rumor is simply false. Either way, we’ll just have to wait and see what happens after he takes office in a couple of weeks.
• The minutes from the Federal Reserve’s latest meeting showed concerns about the impact Donald Trump’s policies could have on inflation. Fed chair Jerome Powell has been reluctant so far to comment directly on a Trump administration’s impact on rate policy, but Trump’s plans now seem clear enough to at least be taken into consideration.
• The US private sector added 122,000 new jobs in December, down from 146,000 in November. The consensus forecast was for 136,000 new jobs. Pay grew 4.6% compared to a year ago, its slowest rate since July 2021.
• Devastating fires left many people in Los Angelas homeless and caused major insurance companies to crash due to the expected damages.
• Indonesia became the first Southeast Asian nation to join the BRICS as a full member.
• US bankruptcies hit a 14-year high.
• Michael Barr will step down from his position as the top banking regulator at the Federal Reserve by February 28, mainly due to an expected confrontation with Donald Trump who will now be able to name a replacement himself.
• Consumer sentiment in France fell to its lowest level in over a year amid political turmoil.
• Donald Trump was found guilty of falsifying business records in connection with a payment to porn star Stormy Daniels before the 2016 election. He was sentenced to “unconditional discharge”, meaning no jail, no probation, and no fine. The sentencing still makes him the first criminal convict ever to be president of the United States.

Other

• Meta announced that it’s removing third-party fact checking from its platforms. It will implement community notes instead, similar to what’s known from X (formerly Twitter). While founder and CEO Mark Zuckerberg presents the decision as a move toward free speech and less censorship, he did receive some criticism from certain employees.
• Speaking of Meta, the company also brought on Dana White, CEO and President of the UFC, as a board member.
• Disney will merge its Hulu+ Live TV service with Fubo. Both services mimic the traditional cable TV bundle and will now (hopefully) simplify things for consumers. Fubo rallied 250% on the news.
• Sam Altman wrote in a recent blog post that OpenAI plans to release an AGI (Artificial General Intelligence) service this year.
• The US Department of Defense added Chinese Tencent to its list of ‘Chinese military companies’. Shares dropped 8% on the news.
• Shutterstock and Getty Images announced a merger of equals. The combined enterprise will have a market value of around $3.7 billion.
• Nvidia CEO Jenson Huang poured some cold water on quantum computing believers, saying that useful quantum computers are likely 20 years away. Unsurprisingly, quantum-related stocks took a bit hit after the statement.
• Disney, Fox, and Warner Bros. Discovery called off their plans to launch sports streaming service Venu.

Earnings

• Taiwan Semiconductor reported record revenues of 2.9 trillion New Taiwan Dollars (87.5 billion US dollars) in 2024 after Q4 revenue of 868.5 billion. The latter was a 38.8% increase year-over-year.

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