Markets Weekly Outlook – US Jobs Data in Focus as King Dollar Eyes Further Gains

The US dollar has kicked off 2025 with strength, reaching a two-year high on the Dollar Index, while US equities did not perform as well, missing expectations for a lively Santa Rally.

Global equity funds experienced a dramatic decline in inflows, observing an 86% drop compared to the previous week. This shift is largely due to rising bond yields and potential adjustments in investment portfolios.

Week in Review: King Dollar Starts 2025 on the Offensive

The first week of January marks a crucial point for the strength of the US dollar. The Dollar Index soared to levels above 109.50, establishing itself at a two-year high. This momentum suggests that the dollar may continue to thrive in the coming months.

In contrast, US equities faced disappointment as the S&P 500 index endured five consecutive days of losses starting December 26. Historically, the early days of January tend to be favorable for US stocks, providing some hope for recovery.

According to data from LSEG Lipper, net investments into global equity funds amounted to just $4.93 billion, a stark decrease from the prior week's $35.1 billion. This trend reflects increased bond yields, particularly as the US 10-year yield reached 4.64%, which is the highest seen since early May 2024.

Additionally, gold prices showed slight upward movement but remained in a restricted range. The fluctuating narratives surrounding US tariffs and their potential impact on the dollar weigh heavily on gold’s prospects. The uncertainty in the global economy may keep safe-haven demand for gold intact.

Brent crude oil prices gained momentum this week after a prolonged period of consolidation, climbing approximately 4%. Despite this week's gains, analysts predict a challenging outlook for oil prices in 2025, with estimates suggesting Brent may average around $70 a barrel following a decline in 2024.

The Week Ahead: NFP to Pose a Test for USD Dominance

Asia Pacific Markets

The upcoming week presents a quiet economic calendar in the Asia Pacific region. Highlights include the Caixin Service PMI from China, essential for understanding recent economic trends.

Deflation concerns in China are rising, alongside the yuan depreciating against the US dollar. Interestingly, recent manufacturing data provided a hopeful sign with slight improvements. The weaker yuan might be a strategy by Chinese authorities in expectation of incoming US trade tariffs.

Attention will also be directed towards Australia midweek, focusing on three key economic indicators: monthly CPI data, retail sales, and the trade balance. These figures are vital for understanding the fluctuating Australian economy, previously affected by its commodity currency status and fluctuations in its trade dealings with China.

Europe + UK + US

Next week, the spotlight will shift to the United States with the Non-Farm Payrolls (NFP) report, a critical gauge for the health of the labor market. Analysts anticipate a rise of approximately 153,000 jobs in December, with the unemployment rate expected to hold steady at 4.2%.

Wage growth is also projected to remain at around 4% compared to the previous year. Given the recent rate cuts by the Federal Reserve in 2024, market observers are preparing for expectations of further cuts in the upcoming year.

Moreover, Eurozone inflation data will be released as the euro struggles against the dollar, with discussions about the possibility of reaching parity between EUR/USD. A decline in inflation rates may generate increased speculation regarding interest rate cuts by the ECB, which could further widen the policy gap compared to the Federal Reserve.

Chart of the Week

The focus this week returns to the US Dollar Index (DXY), which has broken out of previous consolidations, signaling a strong start to the New Year. The Index has approached a resistance level of 109.50.

However, Friday’s trading session could potentially result in a bearish candle, suggesting a possible pullback in the coming week. Despite this, past trends indicate that pullbacks during the recent rally have often been temporary.

Support levels are currently set at 108.50, followed by 108.00 and 107.50. In contrast, breaking the recent highs at 109.53 will be necessary to target further resistance levels of 110.00 and 110.50.

Dollar, Equities, Inflation