Last Friday, U.S. stocks fell as investors worried that strong job market reports could lead to higher inflation and interest rates, which would hurt Wall Street. Stocks followed the bond market’s lead, where rising yields added pressure.

• Nasdaq Composite Index closed at 19,161.63, falling 1.63% on the day and 2.34% for the week
• NYSE Composite Index ended at 18,963.01, down 1.44% for the day and 1.51% for the week.
• S&P 500 Index settled at 5,827.04, declining 1.54% on the day and 1.94% over the week.
• Dow Jones Industrial Average EW closed at 12,891.16, falling 1.42% for the day and 1.78% for the week.

Major European stock indices experienced slight declines due to elevated government bond yields and anticipation of U.S. employment data.

• Stoxx Europe 600 Index finished at 511.50, down 0.84% on the day, but up 0.65% for the week.
• DAX Performance Index closed at 20,214.79, decreasing 0.50% for the day, but gaining 1.55% for the week.
• CAC-40 Index ended at 7,431.04, dropping 0.79% on the day, but rising 2.04% over the week.

Major Asian stock indices experienced declines amid concerns over potential U.S. tariffs and the Federal Reserve’s interest rate policies.

• Shanghai Composite Index ended at 3,168.52, down 1.33% for the day and 1.34% for the week.
• Hang Seng Index finished at 19,064.29, falling 0.92% on the day and 3.52% for the week.
• Nikkei 225 Index closed at 39,190.40, declining 1.05% for the day and 1.77% for the week.
• Australia’s S&P/ASX 200 Index closed at 8,294.10, declining 0.42% on the day, but rising 0.53% for the week.

• The Dollar Index (DXY), a closely watched gauge of the U.S. dollar’s performance against other major currencies, closed at 109.65, gaining 0.47% on the day and 0.67% over the week.

• The Brent crude oil, the global oil price benchmark, surged to $79.76 per barrel, rising 3.69% daily and 4.25% on a weekly basis.

• The Gold climbed to $2,685.61 per ounce, marking a daily increase of 0.59% and a weekly gain of 1.79%.

• The 2-year U.S. Treasury yield particularly responsive to Federal Reserve policy rates, rose to 4.39 bps, up 11.60 bps on the day and 10.10 bps for the week.

• The 10-year U.S. Treasury yield an indicator of long-term borrowing costs, increased to 4.77 bps, gaining 8.10 bps daily and 16.70 bps over the week.

This week in the United States, the earnings season will gain momentum, with several financial institutions set to report their quarterly results. Major banks such as JPMorgan Chase, Wells Fargo, Goldman Sachs, Citigroup, Bank of America, and Morgan Stanley will be at the forefront of these reports.

Investors will be keen to assess how these banks performed amidst the current economic environment, including potential shifts in interest rates and market volatility. Additionally, asset management giant BlackRock and brokerage firm Charles Schwab are also scheduled to release their earnings, adding further significance to the week’s financial reporting.

All eyes in the U.S. will be on inflation this week, with the Consumer Price Index (CPI) report taking centre stage on Wednesday.

Analysts expect the annual inflation rate to rise for the third consecutive month, reaching 2.8%, which would indicate persistent inflationary pressures. However, the monthly inflation rate is likely to hold steady at 0.3%, signaling a more measured pace of price increases in the near term. The core inflation rate is projected to remain unchanged at 3.3% annually, with a slight moderation in the monthly rate, expected to ease to 0.3% from the previous 0.4%.

Alongside CPI data, the Producer Price Index (PPI) is anticipated to show an annual increase of 3%, maintaining the same level as the previous period. The monthly change in PPI is expected to slow slightly to 0.3%, compared to 0.4% in the prior month.

Both inflation figures will be closely watched by policymakers and market participants to gauge whether inflationary pressures are moderating or persisting, influencing future interest rate decisions by the Federal Reserve.

Retail sales data will also provide key insights into consumer spending behavior and economic resilience. A 0.5% increase is expected in retail sales, which would be a deceleration compared to the previous month’s 0.7% rise. This softer growth could suggest a slight cooling in consumer demand.

Industrial production is projected to rebound by 0.2%, which could signal some stabilization in the manufacturing sector.

Other important economic indicators to watch include building permits and housing starts, which will provide insights into the state of the housing market. The NAHB Housing Market Index will give a snapshot of homebuilders’ confidence, while the Philadelphia Fed Manufacturing Index and the NY Empire State Manufacturing Index will offer views on regional manufacturing conditions. Additionally, the NFIB Business Optimism Index and consumer inflation expectations will shed light on sentiment among small businesses and consumers, respectively.

Amidst all these data releases, traders and investors will closely monitor comments from Federal Reserve officials, who are likely to provide further clues on the central bank’s stance on interest rates and monetary policy.

In Europe, the focus will shift to the European Central Bank’s (ECB) account of its December policy meeting, which will offer insights into the bank’s future monetary policy direction. Investors and analysts will look for any indications of whether the ECB plans to maintain or adjust its current stance on interest rates and inflation control measures.

In addition to the ECB’s update, final inflation data for the Euro Area in December is anticipated to show the annual inflation rate rising from 2.2% to 2.4%. This uptick could reflect persistent inflationary pressures, which the ECB may address through future policy moves. Alongside inflation data, industrial production figures for November are expected to reveal signs of recovery, suggesting that the region’s industrial sector is gaining momentum after a challenging period.

Germany, Europe’s largest economy, will release its 2024 GDP data, with forecasts indicating a 0.2% contraction. This would mark the second consecutive year of economic decline, raising concerns about the country’s economic resilience. Germany will also report on wholesale prices and final Consumer Price Index (CPI) figures, giving a clearer picture of inflationary trends in Europe’s largest economy.

Poland’s central bank is expected to keep its benchmark interest rate at 5.75% for the 14th consecutive meeting. This continued policy stance reflects the bank’s cautious approach to controlling inflation and supporting economic stability. 

In the UK, the economic calendar is packed with important reports on inflation, GDP, and retail sales. The annual inflation rate is projected to rise to 2.7%, marking the highest level in nine months. Core inflation, however, is expected to ease slightly to 3.4%, indicating that underlying inflationary pressures may be stabilizing.

November GDP is forecast to rebound by 0.2%, signaling a potential recovery after two months of contraction. Industrial and manufacturing production are also expected to show signs of recovery, suggesting a modest revival in these sectors.
Retail sales are expected to grow for the second consecutive month, with a forecasted acceleration to 0.4%, indicating that consumer spending is picking up after previous declines.