Markets Reassess Risks Amid Inflation and Policy Uncertainty
Markets paused midweek as traders reevaluated rising US inflation risks and President-elect Donald Trump’s policy impact. After Tuesday’s sharp selloff in tech stocks, US equity futures signaled a stronger open on Wednesday. The Nasdaq 100, which logged its worst day this year, is looking to rebound, with Nvidia Corp. gaining 1.8% in premarket trading.
Bond Yields and Growth Concerns Challenge Risk Assets
Treasury yields have climbed this month as economic resilience forces traders to push back interest rate cut expectations. The yield on 10-year Treasuries was steady at 4.68%, with Amundi SA suggesting a possible retest of the 5% mark—a level seen only a few times in the last 20 years.
Lilian Chovin of Coutts & Co. commented, “Markets can digest higher yields if they’re driven by growth, but inflation poses a near-term challenge for risk assets.”
Equity Markets Brace for Further Volatility
Volatility remains a key theme for equity investors as concerns about inflation, tariffs, and monetary policy dominate. Analysts from Natixis Investment Managers predict these factors could heighten market uncertainty throughout 2025.
Meanwhile, global corporations and banks have raised $111 billion in credit so far this year, showing robust credit supply despite government debt volatility.
Key Events Shaping Market Sentiment
Several crucial events this week are expected to impact investor sentiment, including:
- Fed Minutes: Insights into the Federal Reserve’s December meeting.
- US Jobs Report: A critical indicator for the labor market and Fed rate decisions.
- China CPI and PPI Data: Offering a glimpse into the world’s second-largest economy.
- State Funeral for Former President Jimmy Carter: A federal holiday that may pause trading activity.
Currency and Commodities Overview
The dollar index rose 0.2% as the euro, pound, and yen weakened against the dollar. Bitcoin slipped 0.5% to $95,951.45, while Ether held steady at $3,362.17.
In commodities, West Texas Intermediate crude rose 0.5% to $74.61 per barrel, while spot gold edged up 0.2% to $2,653.42 an ounce.
Long-Term Outlook Amid Persistent Challenges
As markets adjust to persistent inflation and policy uncertainty, investors face a balancing act between growth opportunities and inflationary risks. With economic resilience and evolving policies from the incoming administration, 2025 promises a dynamic and challenging market environment.