Hopes of a ‘Santa Claus’ rally in equities, over the holiday season, hit the wall overnight. The DOW tumbled on very thin trade and little in the way of economic data releases. Markets are spooked by the re-emergence of inflation, in both Europe and the USA. Energy prices remain high, due to all the serious challenges over the last few years, but also a cold Northern Hemisphere winter. The Fed recognised the upsurge in inflation and has wound back the prospects of interest rate cuts in 2025. Trump will be inaugurated on the 20th of January, and this promises to add sparks to the fire. Europe and China have been warned with tariffs, regarding continued trade imbalances and the impact this may have on global trade, has spooked many. The flight to the safety of the US Dollar continues, as the EUR crashed below 1.0400, while the GBP tests 1.2500, to the downside.Asian markets are also under pressure, with South Korea particularly in the firing line. The terrible plane crash followed a month of political upheaval, that continues to play out. Japanese markets are also feeling the pressure, with rising inflation and contractions in Manufacturing, while the Yen has plunged to 158.00. The surging reserve has added further downward momentum to commodity currencies, with the AUD once again testing the downside of 0.6200, while the NZD holds above 0.5600. This trade has accentuated the sell-off in equities, with little economic data to drive the market narrative.
