Momentum Compass 20/01/2025: analysing last week's moves and key drivers ahead
US markets staged a strong recovery last week, with value stocks outperforming growth shares. Here's what drove markets and the key events ahead.
Last week's market recap
Major US indices recovered from the previous week's decline, with value stocks demonstrating particular strength. The outperformance of value over growth reached its widest margin since September.
Energy stocks benefitted from rising oil prices, while commodity trading saw increased activity. The financials sector also saw strong weekly gains amid strong earnings reports and some earnings upside surprises.
Large-cap technology stocks experienced some profit-taking, though the overall market sentiment remained positive. This rotation highlighted the importance of diversification in trading strategies.
Traders using trading platforms witnessed notable sector rotation as market participants adjusted their positions accordingly.
Inflation trends and monetary policy
US core inflation showed encouraging signs, dropping to 3.2% year-over-year (YoY) in December from November's 3.3%. This development sparked optimism about potential Federal Reserve (Fed) policy shifts with the door remaining open for potential rate cuts later this year. Treasury yields declined across most maturities, reflecting changing market expectations about future interest rate paths.
The forex trading market responded to the inflation data, with the US dollar initially softening before stabilising above pre-payrolls levels.
These movements created opportunities for traders utilising spread betting and CFD trading strategies.
Global market developments
European markets demonstrated strength, with the STOXX Europe 600 Index rising nearly 2.4% a softer inflation data boosted sentiment across regions.
Chinese equities advanced despite ongoing deflationary concerns, suggesting potential opportunities for those engaged in share trading.
Gold continued its upward trajectory, marking its third consecutive week of gains and approaching record highs.
The week ahead: US President Trump’s decrees and corporate earnings
The week starts quietly with US markets closed for the country’s Presidential inauguration holiday on Monday, but momentum is expected to pick up once the content of Donal Trump’s hundred or so decrees becomes public knowledge. This is expected to generate volatility from Tuesday onwards.
Netflix’s earnings report, also on Tuesday, kicks off a crucial phase of the reporting season. In the UK easyJet’s first quarter (Q1) trading statement on Wednesday and Burberry’s third quarter (Q3) trading statement on Friday will be closely monitored.
On Friday, central bank actions and economic indicators will also take centre stage. The Bank of Japan (BoJ) is set to announce its latest rate decision, a key event as markets gauge how Japan's monetary policy evolves in response to global pressures.
Additionally, flash Purchasing Managers’ Index (PMI) readings from major economies will provide insights into business activity and growth momentum.
As markets digest these developments, investors will remain focused on the broader macroeconomic picture, particularly inflation trends and their implications for monetary policy in the months ahead. With slower inflation providing some relief to markets, optimism about a potential easing of central bank hawkish stances could support continued gains in equities and other risk assets.
The technology sector's performance could influence broader market direction, especially for those involved in options trading.
Netflix's earnings will also provide important insights into consumer spending trends and streaming market dynamics.
How to trade current market conditions
- Research upcoming earnings reports and economic releases
- Consider whether you want to trade or invest based on market conditions
- Open an account with us to access global markets
- Monitor market movements using our advanced platforms
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