1. Futures lower
US stock futures edged lower on Monday as investors looked ahead to a week highlighted by key economic releases and fresh corporate earnings.
By 03:30 ET (08:30 GMT), the Dow futures contract had dipped by 113 points or 0.3%, S&P 500 futures had shed 31 points or 0.5%, and Nasdaq 100 futures had fallen by 160 points or 0.8%.
The main averages retreated in the prior session, dragged down by a strong US employment report for December that dented expectations for future potential Federal Reserve interest rate cuts this year. The addition of 256,000 roles last month was well above analysts’ expectations, while the unemployment rate also decelerated slightly to 4.1% from 4.2%.
Fed officials, who slashed rates by a full percentage point in 2024, had flagged before the readings that they would approach further reductions this year with some caution due in part to uncertainty around the possible impact of President-elect Donald Trump’s trade agenda on inflation. Friday’s jobs figures — and the prospect of tighter labor market conditions — may only add to the case that pressure from price gains is not fully doused.
The data has exacerabted doubts around how many cuts — if any — the Fed could roll out this year, driving up government bond yields and weighing on equities.
“Yet another upside surprise on US jobs numbers will intensify the belief that Federal Reserve officials are under no pressure to cut interest rates in the near term,” said ING Chief International Economist James Knightley in a note.
2. Inflation data ahead this week
With a potential revival of inflation one of the key risks facing stock markets, Wednesday’s consumer price index (CPI) will be closely watched.
Economists are expecting the December CPI to show a 2.9% year-over-year increase, which would be faster than the preceding month’s pace of 2.7%. On a month-on-month basis, the figure is tipped to match November’s reading of 0.3%.
While the Fed was confident that inflation had moderated enough to start cutting interest rates in September, the pace of annual price gains has remained above the Fed’s 2% target. The Fed now projects inflation will rise 2.5% in 2025.
Still, Chicago Fed President Austan Goolsbee argued in an interview with CNBC following the jobs report that he feels inflation is easing, saying there is room for further rate cuts.
Goolsbee added that he has not seen “a lot of evidence” in recent months the broader economy is overheating, noting that inflation has been hovering at around 1.9% over the past six months and wage growth is matching the Fed’s estimates.
3. Bank earnings loom large
The outlook for inflation and rates threatens to test the optimism around a batch of new quarterly returns from several major Wall Street lenders this week.
JPMorgan, Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and Goldman Sachs are due to report on Wednesday, kicking off the upcoming earnings season. Meanwhile, Bank of America and Morgan Stanley (NYSE:MS) are set to unveil their results on Thursday.
Robust deal volumes and the prospect of more business-friendly policies in the upcoming Trump administration are expected to aid sentiment around the earnings, although scrutiny is still anticipated to fall on net interest income — or the difference between what a bank pays for deposits and rakes in from loans.
Profits at companies in the S&P 500 are projected to have climbed nearly 10% in the quarter from a year earlier, according to LSEG IBES data cited by Reuters.
4. China trade balance grows
China’s trade balance expanded by more than projected in December, aided by stronger-than-expected exports as local companies braced for US trade tariffs under President-elect Trump.
The country’s trade balance grew to $104.84 billion last month, compared to expectations of $100 billion, government data showed on Monday. The reading also rose sharply from the $92.44 billion seen in November.
Exports increased 10.7% year-on-year, more than expectations of 7.3% and up sharply from the 6.7% uptick posted in November. The numbers come as local exporters front-loaded their US shipments before the possible imposition of steep import tariffs by the incoming Trump administration.
Imports grew 1% in December, compared to estimates for a drop of 1.5% and a decline of 3.9% in November, as local demand showed some signs of improvement amid consistent stimulus measures from Beijing.
5. Crude rises
Oil prices climbed strongly Monday, continuing last week’s gains after the announcement of additional US sanctions on Russian producers and ships, potentially serving as a major logistical headwind to crude flows.
By 03:30 ET, the US crude futures (WTI) climbed 1.7% to $77.04 a barrel, while the Brent contract rose 1.8% to $81.20 a barrel.
Both contracts have risen by more than 6% since the middle of last week, when the wider sanctions on Russian oil were first mooted, before being confirmed on Friday.
The new sanctions included producers Gazprom (MCX:GAZP) Neft and Surgutneftegas, as well as almost 200 vessels that have shipped Russian oil. The moves may push China and India, the world’s top and third-largest oil importers respectively, to source more crude elsewhere, boosting prices and shipping costs.
(Reuters contributed reporting.)
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