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Week Ahead: Inflation Data, Labor Market Strength, and Trump Transition Uncertainty

Major market focus this week is on inflation data as strong U.S. jobs numbers (256,000 new jobs in December) delay Fed rate cut expectations. Watch for U.S. CPI on Wednesday amid 2.8% forecast. Gold rises 2% on Trump transition uncertainty, while oil hits $78/barrel after new Russia sanctions. Key events include China's Q4 GDP and U.S. retail sales data.


Key Events and Data to Watch This Week


Monday, January 13

  • 08:00: Australia TD-MI Inflation Gauge (Dec)

  • 11:00: China Trade Balance (Dec)


Tuesday, January 14

  • 21:30: US Producer Price Index (Dec)


Wednesday, January 15

  • 15:00: UK Consumer & Producer Price Indices (Dec)

  • 18:00: Eurozone Industrial Production (Nov)

  • 21:30: US Consumer Price Index (Dec)


Thursday, January 16

  • 08:00: Australia Consumer Inflation Expectations (Jan)

  • 08:30: Australia Employment Change (Dec)

  • 15:00: Germany Consumer Price Index (Dec)

  • 15:00: UK GDP & Industrial Production (Nov)

  • 21:30: US Retail Sales (Dec)


Friday, January 17

  • 10:00: China Triple Release:

    • Q4 GDP

    • Industrial Production (Dec)

    • Retail Sales (Dec)

  • 15:00: UK Retail Sales (Dec)

  • 18:00: Eurozone Harmonized Index of Consumer Prices (Dec)

  • 22:15: US Industrial Production (Dec)


Unemployment Drops, Dollar Rallies: All Eyes on Inflation


On Friday, U.S. labor market data revealed that the job market is stronger than previously thought, giving Federal Reserve officials more room to delay rate cuts in the near term. Traders will be closely watching inflation data this week to assess whether the Fed's case for pausing rate cuts will strengthen.


The report published by the U.S. Bureau of Labor Statistics showed that nonfarm payrolls rose by 256,000 in December, marking the largest increase since March. This figure exceeded the expectations of all but one economist surveyed by Bloomberg. Additionally, the unemployment rate unexpectedly dropped to 4.1%, while the year-over-year growth in average hourly earnings slowed to 3.9%.


Throughout the year, the U.S. labor market cooled under the weight of high interest rates, sticky inflation, and elevated uncertainty, leading to a rise in the unemployment rate. Nevertheless, 2.2 million new jobs were added in 2024—an average of 186,000 per month. While this marks the smallest annual gain since 2020, it surpasses the 2 million jobs added in 2019, prior to the pandemic.


The report also included revisions to prior months' data. Payroll growth in October was revised upward by 7,000 to 43,000, while November's figures were revised downward by 15,000 to 212,000. Additionally, the July unemployment rate, which had fueled recession fears and prompted the Fed to cut rates by half a percentage point in September, was revised from 4.3% to 4.2%.


More than 40% of the net hiring last year occurred in healthcare and social assistance, while about 20% took place in the government sector. An aging population supported growth in healthcare-related jobs, while government hiring was bolstered by fiscal spending under the Biden administration.


Conversely, the manufacturing sector experienced job losses totaling 87,000—the highest outside of the pandemic since the global financial crisis in 2009. These losses, along with the contraction in factory activity throughout the year, highlight ongoing concerns among some economists about labor market cooling.

week-ahead-inflation-data-labor-market-strength-and-trump-transition-uncertainty

Even so, the current figures support Fed officials' focus on inflation risks and their cautious stance for the year ahead. As Fed Chair Jerome Powell stated after the December meeting, the Fed will need to see more progress on inflation before considering further rate cuts, as long as the labor market remains robust.


In this context, the consumer and producer price indices to be released this week could provide additional insights into the inflation trajectory. Median estimates suggest consumer prices rose by 2.8% year-over-year in December, up from 2.7% in the prior month. The so-called core measure, which excludes volatile food and energy costs, is expected to remain steady at 3.3%.


Meanwhile, a separate report published on Friday showed that long-term inflation expectations among U.S. consumers rose to their highest level since 2008. According to preliminary results from the University of Michigan's January survey, Americans expect inflation to rise by 3.3% over the next five to ten years, up from 3% the previous month. These expectations reflect concerns about tariff policies under the incoming administration of Donald Trump.


With just days remaining until Trump assumes office, market uncertainty is elevated. However, global sentiment aligns around expectations of higher U.S. inflation and interest rates.


Following the job data release, economists at major U.S. banks revised their forecasts for Fed rate cuts. Bank of America, which previously anticipated two quarter-point cuts this year, now highlights the risk of the next move being a rate hike. Goldman Sachs adjusted its projection from three quarter-point cuts to two, while Citi economists still expect five cuts but now foresee the first move occurring in May rather than January.


Meanwhile, swap traders are now pricing in 26 basis points of rate cuts for this year, down from 38 basis points before the jobs data. The timing of a quarter-point cut has also shifted, with expectations moving from June to September. This development has driven U.S. Treasury yields higher and accelerated the rally in the U.S. dollar.


Wednesday's inflation data will provide further clues on the Fed's monetary policy trajectory and set the direction for the U.S. dollar. A strong reading could strengthen the dollar further, putting pressure on other currencies. The CPI report will be followed by December retail sales figures on Thursday, which are expected to confirm robust holiday spending.


Gold's Resilience Faces Inflation Test This Week


Gold rose by approximately 2% last week amid uncertainties surrounding the upcoming Trump administration, stabilizing after the release of a surprising jobs report.


The resilience of the U.S. labor market, coupled with rising inflation, has prompted the Fed to scale back rate cuts this year— a stance further justified by the latest job data. Following the data, 30-year U.S. Treasury yields climbed above 5% for the first time in over a year, while 10-year benchmark yields surged by more than 10 basis points to around 4.79%.


Higher yields are typically bearish for gold. However, with just days until Trump assumes office, market uncertainties are sustaining demand for gold as a safe haven. Additionally, some analysts note that traders are reducing equity risks in favor of the dollar and gold.


The heightened market volatility amid uncertainties could continue to support gold demand. On the other hand, traders will closely monitor this week's inflation data to gauge how long the Fed might pause rate cuts. An increase in expectations for a more hawkish Fed could put downward pressure on gold prices.


U.S. Sanctions on Russia Add Complexity to 2025 Oil Outlook


The outlook for the oil market, marked by expectations of rising supply and subdued demand in 2025, became more complex following the announcement of the U.S.'s boldest sanctions package yet against Russia's energy sector.


The rally in oil prices, which had been climbing in recent weeks amid speculation over the Trump administration's tightening sanctions on Iranian oil, accelerated, reaching over $78 per barrel—its highest level in more than four months.


On Friday, the Biden administration imposed its most comprehensive sanctions to date targeting Russia's oil and gas revenues, aiming to pressure Moscow into reaching a peace agreement in Ukraine. It remains unclear how these restrictions will affect crude flows, but the risk premium in oil prices has surged to new highs in the year's opening weeks.


Citigroup estimates that up to 30% of Russia's so-called shadow tanker fleet could be impacted, though Mizuho Bank highlights the possibility of Russian oil continuing to seep into supply despite the sanctions. Additionally, non-OPEC and non-Russian production is expected to comfortably meet demand, easing concerns over supply. As worries about supply diminish, the recent rise in oil prices could reverse.


Trade Smarter with Duhani Capital


As markets brace for a week of high-impact data releases, stay ahead of the curve with Duhani Capital. Our cutting-edge platform offers you unparalleled trading advantages, including swap-free trading across all instruments, lightning-fast transaction speeds, and industry-leading leverage of up to 1:1000. Don't let market opportunities slip away – trade with a broker that empowers your success.



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