This week started with a major development as the US delayed its planned tariff implementation by a month. In the foreign exchange market, narrow trading ranges persist as investors await key US employment data. Despite economic uncertainties, the Federal Reserve remains firm on its current policy stance, unlikely to make changes before mid-year.
Meanwhile, equity markets have generally struggled, with most Asian markets, except for China, Hong Kong, and Taiwan, recording losses. The European stock index Stoxx 600, after recent gains, now faces a potential downturn, while US futures also show signs of weakness.
In the commodity markets, gold is holding near recent highs, and oil prices are stabilizing after recent declines, with March WTI crude bouncing back above $71 per barrel.

Asia Pacific Markets

In China, the government has several measures to counteract US tariffs beyond currency adjustments. While China is often portrayed as highly dependent on exports, these make up only about 20% of its GDP, significantly lower than Germany or the UK. Despite fluctuations, the Chinese yuan remains stable as the People's Bank of China maintains tight control over the currency’s reference rate.
On the Japanese front, the yen has strengthened as the US dollar fell to its lowest levels since mid-December, briefly dipping below JPY151.00 before rebounding. The Bank of Japan has signaled plans for further rate hikes, with market expectations pointing toward another increase by mid-year. December household spending in Japan surged by 2.7%, far surpassing expectations, likely fueled by strong year-end bonuses. The Japanese central bank’s cautious yet firm stance on rate increases suggests a long-term shift in monetary policy, with the potential for rates reaching around 1%.

European Markets

The European economic landscape remains uncertain, with the euro reacting to US employment data. In Germany, a surge in factory orders in December did little to prevent a steep drop in industrial production, which fell 2.4%, the sharpest decline in five months. Meanwhile, the yield spread between US and German two-year bonds has widened again, nearing 218 basis points, with the potential to rise further.
The euro has struggled to gain momentum, with resistance levels near $1.04.
In the UK, the British pound saw declines, dropping to a three-day low after peaking earlier in the week. The Bank of England recently announced a 25-basis-point rate cut, with a dovish stance despite internal disagreements among policymakers. Economic forecasts suggest a slowdown, with inflation expected to rise sharply to 3.7% later this year. The UK’s GDP figures, set to be released soon, are projected to show a contraction in the fourth quarter, adding to concerns about the nation’s economic trajectory.

American Markets

The US labor market remains the primary focus, with employment data set to influence investor sentiment. The Federal Reserve is expected to maintain its policy stance until at least mid-year, with futures markets pricing in around 43 basis points of cuts, unchanged from prior expectations.
Meanwhile, the US Dollar Index remains stable but could see increased volatility following the release of employment figures.