This past week, spanning from January 6 to January 11, the U.Snon-farm payroll data exceeded all forecasts significant, leading to an increased probability of the Federal Reserve pausing interest rate cutsAs a result, the U.SDollar Index and Treasury yields continued to rise, while U.Sstock markets experienced declines, placing additional pressure on non-dollar currencies.

In the U.Sstock market, all three major indices reported losses, completely rolling back their gains from earlier in the yearThe Dow Jones Industrial Average recorded a cumulative decline of 1.86% for the week; the S&P 500 index decreased 1.94% across the week; the Nasdaq composite index witnessed a 2.34% dropThe Russell 2000 small-cap index fell a significant 3.49%. Growth stocks, particularly sensitive to interest rates, led these losses, with semiconductor, tech, and AI concept stocks all experiencing declines

The Philadelphia Semiconductor Index dropped 2.44% for the week.

Meanwhile, European markets closed down across the board, albeit with most indices showing gains over the weekThe Europe-wide STOXX 600 index managed to rise 0.65% during the week, while Germany's DAX index climbed 1.55%. France's CAC 40 and the UK's FTSE 100 also reported increases of 2.04% and 0.3%, respectivelyThe Amsterdam AEX index similarly saw a weekly gain of 0.65%.

In the Asia-Pacific region, the Nikkei 225 index fell by 1.77% for the week, while the South Korean Composite Index saw a notable increase of 3.02%. Australia's S&P/ASX 200 index rose by 0.53%. In stark contrast, India's SENSEX 30 index suffered a weekly downturn of 2.33%, and the Nifty 50 index dipped 0.38%, falling over 10% from its historic high achieved in September of the previous year, thus entering a corrective phase.

Regarding foreign exchange markets, as the expectations for a Fed rate cut stumbled again, the U.S

• Indian Rupee Expected to Devalue by 3% in 2024
• The Truth About the Silicon Carbide Market
• Trade with India Has Quadrupled Since 2005
• Collapse of Europe's Semiconductor Industry
• Fed Rate Cut May Be Delayed

Dollar Index rose sharply to 110, marking a two-year high, culminating in a weekly increase of approximately 0.68%, closing at 109.6567. Non-dollar currencies felt continued pressure with the Euro dropping 0.56% against the dollar, ending at 1.0242, while the British Pound fell 0.83% to 1.2208. The Japanese Yen also depreciated by 0.25% against the dollar.

On the commodities front, concerns about oil supply intensified following new sanctions imposed by the U.Son Russia's energy sectorThis led to substantial rises in the prices of WTI and Brent crude oil, both crossing the $80 per barrel threshold for the first time since October of the prior yearWTI crude climbed over 3.53%, while Brent crude saw a price increase of 4.29% throughout the week.

Despite the robust employment data from the U.S., the uncertainty surrounding subsequent policy measures has prompted an uptick in safe-haven demand, allowing gold to maintain its upward momentum

COMEX gold futures increased by 2.36% for the week to $2717.4 per ounce; spot gold also rose by 1.9% during the weekSimilarly, COMEX silver futures climbed 4.11% to $31.3 per ounce, while spot silver rose 2.55% to $30.4140 per ounce.

Next week, the U.Sis expected to release crucial economic data including the Producer Price Index (PPI) and Consumer Price Index (CPI) for December, likely causing further fluctuations in the marketsAdditionally, the earnings season for American stocks will begin.

The impact of U.SCPI data on interest rate cut expectations is considerableThe non-farm payroll figures for December showed an increase, and the unemployment rate declined, reflecting employment conditions that are significantly stronger than market consensus and seasonal patterns, pointing towards a resilient U.Seconomy.

December's non-farm payroll additions reached 256,000, surpassing the expected figure of 160,000 and the previous number of 212,000; moreover, this represented a new peak since April 2024. The unemployment rate also fell to 4.1%, better than both the expected and previous levels of 4.2%.

Analysts indicate that the uptick in job addition stems primarily from consumer spending in the retail sector

Notably, the later Thanksgiving holiday in the U.Sled to a spillover effect wherein the "Black Friday" shopping extravaganza extended into December, thus boosting retail employment improvementsThis is emblematic of the still-strong U.Seconomy.

Upon the release of this data, expectations for Fed interest rate cuts were markedly adjusted downward, with market estimations for a pause in cuts exceeding 93% likelihood by January 2025. The anticipated number of cuts for the year decreased from an expectation of 1.7 to 1.1, indicating that market sentiment is solidly leaning towards only one reduction in 2025, potentially as early as June.

The first non-farm employment report for 2025 greatly exceeded expectations, instigating volatile market reactionsFurthermore, the upcoming CPI data release scheduled for January 15 at 21:30 Beijing Time is poised to be another critical factor influencing market trends and Fed rate cut expectations.

In November, the overall CPI in the U.S

saw its year-on-year growth rate rebound to 2.7%, while the core CPI remained steady at 3.3% for three consecutive months, indicating persistent inflationary pressuresThe rebound in core commodity prices was notably the largest contributor to the CPI's stickiness in November.

For December's CPI data, the market currently anticipates that the month-over-month growth rate will hold steady at 0.3%, with the year-on-year increase projected to rise from the previous 2.7% to 2.9%—the highest level in five monthsCore CPI, excluding volatile food and energy components, is expected to maintain a year-on-year growth of 3.3%, but with a slight deceleration to 0.2% on a month-over-month basis.

Chief economist Lu Zhe at Dongwu Securities emphasizes that due to lower base figures in November and December 2023, January's December CPI is likely to continue its upward trendThe combination of a “low base + high stickiness” is expected to result in a rebound in the year-on-year CPI overall for Q4 2024. However, the sustainability of rental inflation cooling remains in question, alongside persistent core inflation stickiness.

Wells Fargo analysts assert that the CPI data in December will rise due to increases in energy and food prices

The decline in gasoline prices was less than the typical annual averages during that period, and the later timing of Thanksgiving compared to previous years has resulted in fewer promotional activities in December 2024, with sustained increases in commodity prices relevant to food further driving food inflation data.

Although Wells Fargo does not expect a significant reversal in the Federal Reserve's “anti-inflation” efforts, they foresee a stagnation in the U.Sinflationary decline into 2025. Previously, inflation cooling trends have been driven mainly by improvements in supply chains and drops in commodity prices; however, these forces seem to be waning, and new headwinds such as shifts in trade policy may start to reveal themselves.

In the foreign exchange arena, should CPI data run too hot, this could further elevate U.STreasury yields and the dollar's strength, intensifying the pressure on non-dollar currencies

Of note, many non-dollar currencies have recently weakened, including those of the euro, pound, and currencies from Indonesia, Vietnam, India, Japan, and South Korea.

The yen dipped to a 158.87 level against the dollar, reaching its lowest point since July of the previous yearThe euro's weekly drop against the dollar amounted to 0.63%; similarly, the pound fell below the 1.25 mark against the dollar, just shy of its low from the previous AprilThe implied volatility for the pound surged to 10%, reaching a peak since the banking crisis in March 2023.

This reflects a dual-edged concern: on one hand, the U.Keconomy finds itself in a state of prolonged stagnation, with sluggish productivity influencing inflation, employment, and fiscal sectorsOn the other, there are fears that increasing borrowing costs will further escalate the UK's debt deficit ratio, amplifying public concern over the country's financial stability.

The upcoming release of U.K

inflation data and government bond auctions next week may sway the pound’s trajectoryING's interest rate strategist Michiel Tukker indicated in a report that persistent inflation in the UK, rising U.Sbond yields, and high issuance levels of U.Kgovernment bonds could keep upward pressure on the yields for these bonds.

Analyst Lu Zhe has indicated that current market expectations regarding interest rate cuts are exceedingly pessimistic, with a potential reversal of the strong dollar narrative expected in FebruaryShort term, even in light of strong non-farm data from December, expectations for tight monetary policy and a strong dollar remain crowded and are unlikely to reverse imminentlyMost predictions for this year suggest a shift from weak to strong monetary policy, with a mild dollar phase slated for February to MayIt’s predicted that interest rate cuts might be frontloaded to March and June, yet a regional pause is expected in Q2 of 2025.

As we approach the U.S

earnings season for the fourth quarter, major financial institutions like JPMorgan Chase, Citigroup, Goldman Sachs, and Bank of America are set to announce results, with TSMC also scheduled to report its earnings.

The first non-farm employment report of the New Year has significantly impacted the three major U.SindicesAs the fourth-quarter earnings reports unveil, market analysts will be keenly observing whether these results influence the subsequent movements of U.Sstocks.

Mike Wilson, Chief Investment Officer at Morgan Stanley, posits that 2025 might entail a stark divergence for U.Sstocks, given the challenges posed by surging Treasury yields and a stronger dollar throughout the first half of the year.

Wilson notes that the breach of the 4.5% threshold in Treasury yields signals heightened market concerns regarding a high-rate environmentSuch shifts have also transformed the correlation between the S&P 500 index and yields into a negative one, which may further impact equities negatively.

Furthermore, John Marshall, a derivatives strategist at Goldman Sachs, has reported that hedge funds are aggressively shorting the U.S