Inflation expectations are shifting again

European equities and US stock-index futures declined as traders scaled back forecasts for Federal Reserve rate cuts following the release of Friday’s strong US payroll numbers. Global bond yields edged higher, and the dollar strengthened.

The Stoxx Europe 600 dropped 0.6%. Energy shares outperformed, buoyed by oil reaching a four-month high, as new US sanctions on Russia threatened to tighten global supply. Futures for the S&P 500 fell 0.4%. Asian stocks slid for a fourth straight day. A Bloomberg index of the dollar touched its highest level in over two years. US Treasury yields extended last week’s climb, with the 10-year rate up two basis points to 4.78%.

Surprisingly robust US employment data has underscored the resilience of America’s economy. Combined with expectations that President-elect Donald Trump’s policies could stoke inflation, many investors now anticipate interest rates will stay elevated for longer than previously predicted.

Investors will next focus on US inflation figures due Wednesday, while also monitoring the New York Fed’s one-year inflation expectations out Monday, producer prices on Tuesday, and jobless claims on Thursday.

Treasuries sank on Friday in response to the December payrolls report, pushing the 30-year yield above 5% for the first time in over a year. Bond declines carried over into Monday, with German bonds falling for an eighth consecutive session—their longest losing streak since December 2022.

DXY near 1.10

The US Dollar Index (DXY) extended its rally after Friday’s US employment report reduced the likelihood of further Federal Reserve rate cuts. Nevertheless, with technical indicators signaling heavily overbought conditions and investors largely pricing in the incoming administration’s policies, the Index may have limited upside. The next key resistance level to watch is currently around 110.0.

EURUSD near 1.02

The Euro slipped to its lowest level since 2022 after Friday’s US jobs report, underscoring a bearish outlook despite heavily oversold technical indicators on most timeframes. Last week’s decline heightens the possibility of a further drop toward parity with the US dollar. However, traders should be cautious about chasing this move, given that the currency has now fallen for five consecutive weeks and remains oversold on multiple timeframes.

Crude oil at 4-month high

Oil prices surged to their highest point in over four months as new US sanctions on Russia’s energy sector raised concerns about supply disruptions, creating uncertainty among major importers in Asia. Brent crude climbed towards $81 a barrel, following a nearly 4% jump in the previous session, while West Texas Intermediate hovered around $78. On Friday, the US implemented its most stringent sanctions to date against Russia’s oil industry, focusing on significant exporters, insurance companies, and over 150 tankers.

Gold holding well above 2650

Gold rose above $2650 after the US jobs report, with inflation expectations changing due to the new administration in the US. Additionally, Gold continues to serve as a hedge against Trump’s presidency, particularly in light of the recent 10% rally in crude oil over the past few days.

Meanwhile, solid support is expected at $2660 – $2650, where buyers are likely to reemerge. On the upside, $2700 remains the next significant resistance level for the time being.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

Disclaimer
This is a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. The information contained herein does not constitute a personal recommendation and does not consider your personal investment objectives, investment strategies, financial situation or needs. Squared Financial makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on a recommendation, forecast, or other information supplied by Squared Financial.

The information on this site is not intended for any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.