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Key takeaways

US political drama held the media spotlight last week, with news headlines covering the current and former presidents. Behind the noise, financial markets remained preoccupied by the likelihood of interest rates cuts to come…

  • Early in the week, a US appeals court denied presidential immunity to ex-president (and future presidential hopeful) Donald Trump over his alleged interference in the 2020 election. And as the week drew to a close, the spotlight turned to President Biden, with supporters forced to defend the president against growing concerns surrounding his mental acuity. This turbulence came in the wake of a damaging report from the US Department of Justice. Updates like this can certainly dominate news cycles, but our view is that near-term political noise rarely moves financial markets in a meaningful way.
  • Indeed, investors remained more concerned with estimating the likely timing, pace and magnitude of potential interest rate cuts from the US central bank (the Federal Reserve, or Fed). Bond prices fell (and bond yields, which always move in the opposite direction to bond prices) rose over the week, as investors pared back their expectations for a rate cut at the Fed’s next leading policymaker meeting in March.
  • Sticking with interest rate news, the Bank of England’s Chief Economist, Huw Pill, claimed that reducing interest UK rates was a question of “when not if”, framing this as a future “reward” for ongoing declines in UK inflation. As a reminder, on 1 February the Bank opted to hold the benchmark UK interest rate steady at 5.25% for the time being.
  • Crossing the English Channel and turning to mainland European news, the latest figures showed that German factory orders fell for the seventh month running in December. This marks the European manufacturing giant’s longest ever downturn. Analysts will be watching closely to see if this Wednesday’s inflation figures provide any further clarity on Europe’s economic situation.

Weekly market moves

  • Bond prices continued to move lower over the week in response to tempered expectations for interest rate cuts. Bond yields (which always move in the opposite direction to bond prices) moved upwards.

  • It was a record-breaking week for US stock markets, which continued to lead global share prices higher.

What to look out for this week

  • With lots of economic data due for release this week, highlights will include inflation figures covering the US, UK and Europe.

  • It should be a quieter week for market news in Asia, where much of the continent will be welcoming in the Lunar New Year. We wish a happy festive season to all who are celebrating the Year of the Dragon!

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