In premarket trading, futures are pointing to a session in the green, thanks to a series of robust economic indicators, including inflation data that was in line with expectations. U.S. prices nudged upwards in December, while consumer spending took a spirited leap, hinting that the Federal Reserve might keep its interest rate scissors sheathed for a while longer. The Commerce Department's Bureau of Economic Analysis reported a 0.3% rise in the personal consumption expenditures (PCE) price index for December, following a modest 0.1% increase in November. This aligns with economists' predictions. Over the year, the PCE price index saw a 2.6% rise, up from November's 2.4%. The Federal Reserve, which keeps a keen eye on PCE price measures for its monetary policy decisions, opted to keep its benchmark overnight interest rate steady at 4.25%-4.50% this week. The Fed has scaled back its rate cut forecasts for the year to two, down from four in September.

Stripping away the volatile food and energy prices, the core PCE price index ticked up 0.2% in December, mirroring November's increase. On an annual basis, core inflation held steady at 2.8%. Consumer spending, the heavyweight champion of U.S. economic activity, surged 0.7% in December, following an upwardly revised 0.6% increase in November. 

This week, other economic data showed the U.S. economy grew at an annual rate of 2.3% in the fourth quarter, slightly below the expected 2.6%. Inflation indicators, such as the PCE deflator, rose, while weekly jobless claims fell unexpectedly. The Federal Reserve maintained its interest rate, indicating a potential pause in rate cuts. 

Yesterday, equity markets basked in a sea of green, buoyed by a whirlwind of financial news. The Dow Jones Industrial Average rose by 0.4% to 44,882.1 points, the S&P 500 increased by 0.5% to 6,071.2 points, and the Nasdaq Composite added 0.3% to 19,681.8 points. Most sectors, except technology, saw gains, with utilities leading the rise. The world's two leading central banks unveiled their latest monetary policy decisions, while a deluge of corporate earnings reports kept investors on their toes. However, today's market equation might get a bit more complex. US President Donald Trump has resurfaced with a reminder of his plan to impose tariffs on neighboring countries starting tomorrow.

January 2025 has been a stellar month for Western equity markets, unless an unforeseen disaster strikes before the market closes tonight. This is impressive, especially considering that the last week of January was fraught with potential pitfalls, including several central bank decisions and the first major wave of Q4 2024 corporate earnings, featuring key industry indicators. Investors were also taken by surprise with the debut of DeepSeek, a generative AI from China, which has rattled Silicon Valley's confidence in its own dominance. While the initial shock and fear have subsided within the AI sector, financial experts have realized they were perhaps too complacent. However, complacency in finance is a resilient beast, quickly revived by FOMO—the fear of missing out on the next big opportunity.

If DeepSeek hadn't been in the spotlight, central banks would have stolen the show. The Federal Reserve decided to hit the pause button on monetary easing, buoyed by a strong U.S. economy that's still wrestling with high inflation. Across the pond, the European Central Bank took a different route, cutting rates due to a shaky European economy that's largely free from short-term inflation woes. These moves were expected, so the market greeted them with a collective shrug. Turning to corporate earnings, it was a good day for U.S. tech giants. Meta, Tesla, IBM, and Apple all saw their stock prices rise following their earnings reports. Microsoft, however, faced some investor nitpicking, but there's no need to sound the alarm over the software giant's performance. In Europe, SAP SE and ASML delivered solid results, but LVMH left investors wanting more.

Forget the calm before the storm; the tempest is here. Donald Trump is poised to make waves beyond U.S. borders, following a flurry of domestic executive orders. The American president has just announced that, starting February 1, Mexico and Canada will face a 25% surtax on their exports to the United States. Meanwhile, China is on notice for a potential 10% tariff, as Trump bides his time to see how the situation unfolds. In response to these announcements, the dollar surged, while gold prices soared to new heights—a textbook reaction when uncertainty looms. The dollar's ascent was further fueled by Trump's latest critique of the BRICS nations' ambitions to reduce their reliance on the dollar. He reiterated his threat to slap a 100% tariff surcharge on countries daring to ditch the U.S. dollar as their reserve currency. In the world of international trade, it seems the only constant is change, and Trump's latest moves are sure to keep markets on their toes.

In the Asia-Pacific region, Japan continued to gain ground, with the Nikkei 225 up 0.4%. South Korea's resumption of trading after several public holidays resulted in a 1% drop in the KOSPI. By contrast, India and Australia closed the last session of the week in the green, up by around 0.5%. Markets in mainland China, Hong Kong and Taiwan are still closed for the Lunar New Year. European indices are mostly in the green, with the Stoxx Europe 600 up 0.4%.

Today's economic highlights:

The Core PCE price index and data on personal income and household consumption are on the calendar, as well as the Chicago PMI. See the full calendar here.

  • Dollar: $1.24 EUR 0.9634 GBP 0.8052
  • Gold: US$2,807
  • Brent $75.82 WTI: $72.66
  • US 10Y Cash: US$4.52
  • Bitcoin (BTC/USD): US$104,744

In corporate news:

  • IBM's shares surged nearly 13% after reporting a strong fourth-quarter performance, despite a decline in profits.
  • Mastercard also posted better-than-expected results, with shares rising 3.1%.
  • Comcast shares fell 11% due to a larger-than-expected loss in broadband subscribers.
  • Caterpillar's shares dropped 4.6% following a forecast of weaker revenue for 2025 amid ongoing challenges in the construction and resource sectors.
  • Meta Platforms saw a 1.6% increase in shares after exceeding fourth-quarter expectations and settling a legal dispute with former U.S. President Trump for $25 million.
  • Tesla's shares rose 2.8% as CEO Elon Musk discussed future plans for self-driving cars and humanoid robots, despite mixed quarterly results.
  • Microsoft shares fell 6.2% due to slower growth in its cloud computing business, despite surpassing revenue and profit expectations.
  • Apple: Despite a slight dip in iPhone sales, Apple's overall revenue increased to $124.3 billion in the December quarter, with net income rising to $36.3 billion, bolstered by robust services growth and AI features, though sales in China saw an 11% decrease.
  • UPS: UPS is preparing to cut its shipping volume and revenue from Amazon by more than half over the next 18 months, which will affect its profitability and delivery network. Meanwhile, other market sectors, including consumer goods and pharmaceuticals, display varied performances, with some companies seeing gains while others, like Cargo Therapeutics, face sharp declines.

Analyst Recommendations:

  • Accenture Plc: Morgan Stanley maintains its equalwt rating with a price target raised from USD 335 to USD 380.
  • Avery Dennison Corporation: JP Morgan upgrades to overweight from neutral with a target price reduced from USD 210 to USD 205.
  • C.h. Robinson Worldwide, Inc.: Stifel upgrades to buy from hold with a target price of USD 113.
  • Cognizant Technology Solutions Corporation: Morgan Stanley maintains its market weight rating with a target price raised from USD 75 to USD 80.
  • Comcast Corporation: BNP Paribas Exane downgrades to neutral from underperform with a price target reduced from USD 37 to USD 35.
  • Epam Systems, Inc.: Morgan Stanley maintains equalwt rating with a target price raised from USD 230 to USD 256.
  • Intra-Cellular Therapies, Inc.: Canaccord Genuity downgrades to hold from buy with a price target raised from USD 119 to USD 132.
  • Lockheed Martin Corporation: Baptista Research upgrades to buy from hold with a price target reduced from USD 600.90 to USD 583.10.
  • Mondelez International, Inc.: Piper Sandler & Co downgrades to neutral from overweight with a price target reduced from USD 70 to USD 63.
  • Occidental Petroleum Corporation: Goldman Sachs downgrades to sell from neutral with a target price reduced from USD 54 to USD 45.
  • The Hershey Company: Piper Sandler & Co downgrades to underweight from neutral with a target price reduced from USD 153 to USD 120.
  • United Parcel Service, Inc.: Baird downgrades to neutral from outperform with a target price reduced from USD 160 to USD 130.
  • Atlassian Corporation: BMO Capital Markets maintains its outperform recommendation and raises the target price from USD 292 to USD 360.
  • Cheniere Energy, Inc.: Morgan Stanley maintains its overweight recommendation and raises the target price from USD 195 to USD 255.
  • Deckers Outdoor Corporation: Barclays maintains its overweight recommendation and raises the target price from 190 to USD 231.
  • Essex Property Trust, Inc.: Wolfe Research maintains its underperform recommendation and raises the target price from 202 to USD 282.
  • Meta Platforms, Inc.: Huber Research Partners LLC maintains its overweight recommendation and raises the target price from USD 650 to USD 790.
  • Mid-America Apartment Community, Inc.: Wolfe Research maintains its underperform recommendation and raises the target price from USD 124 to USD 152.
  • Oshkosh Corporation: Bernstein maintains its market perform recommendation and raises the target price from 90 to USD 121.
  • Tapestry, Inc.: Baird maintains its outperform recommendation and raises the target price from USD 70 to USD 85.
  • Tractor Supply Company: Loop Capital Markets maintains its hold recommendation and reduces the target price from 290 to USD 54.
  • Visa, Inc.: Compass Point Research & Trading maintains its buy recommendation and raises the target price from USD 327 to USD 393.