Markets lookahead: Trump’s inauguration, key data and earnings season

Global markets ended last week with a risk-on sentiment, buoyed by cooling inflation and positive economic data from China. This week, attention shifts to Trump’s inauguration and the market’s response.

Investors will closely watch his initial policy actions on tax cuts, tariffs, and other measures. Any concrete steps could prolong the so-called “Trump trades” – characterised by a strong US dollar, rising government bond yields, and bullish equity markets.

Conversely, a lack of clarity may result in subdued or sideways movement in these asset classes.

Key economic data will focus on business activity in the manufacturing and services sectors across major economies, while the earnings season will continue to shape market sentiment.

In Asia, the Bank of Japan (BOJ)’s interest rate decision will be a highlight.

Europe

Flash Purchasing Managers’ Index (PMI) data for manufacturing and services sectors in Germany and France will take centre stage.

Manufacturing activity in both countries remained in contraction last month, reflecting political uncertainties and economic challenges.

In France, the manufacturing PMI dropped to 41.9, the steepest decline since May 2020. Germany’s figure came in at 42.5, marking a three-month low.

Forecasts suggest a slight improvement, with PMIs expected at 42.4 for France and 42.9 for Germany, though both remain in contraction territory.

In the services sector, France’s PMI recorded a fourth consecutive month of contraction in December, rising to 49.3 from 46.9 in November.

Germany’s services PMI returned to growth at 51.2 after a brief contraction, indicating a fragile recovery. Projections point to similar trends, with France’s services PMI forecast at 49.5 and Germany’s at 51.1.

Germany will also release the ZEW Economic Sentiment Index, a critical measure of economic outlook. December’s index saw the highest jump in four months, fuelled by expectations of policy shifts amid snap elections and potential rate cuts.

January’s reading is anticipated to slip slightly to 15.2, down from 15.7.

In the UK, manufacturing PMI declined for the third consecutive month to 47 in December, with January’s forecast at 46.9, indicating continued contraction.

Meanwhile, services PMI is expected to edge down to 51.4 from 51.6, marking the 14th consecutive month of expansion.

While these data points are unlikely to drive significant market movements, the ongoing weakness in business activity may reinforce the European Central Bank (ECB) and Bank of England (BOE) rate-cut trajectories through 2025.

United States

The US earnings season will remain a key driver of market sentiment, with Netflix being the first major tech company to report quarterly results this week.

The video streaming giant saw its share price surge 90% in 2024, driven by strong earnings and growth in its ad-supported tier.

Analysts expect earnings per share (EPS) to double year-on-year to $4.23, with revenue forecasted at $10.1 billion, a 15% annual increase.

However, substantial investments in live sports may have pressured profit margins. Netflix shares have pulled back slightly in 2025, closing at $858 last Friday.

The S&P Global flash manufacturing and services PMIs will also be crucial indicators of US economic activity.

Manufacturing PMI contracted for the sixth consecutive month in December, reflecting post-election uncertainties.

In contrast, services PMI showed eight consecutive months of expansion, with December marking the strongest growth.

Asia-Pacific

The Bank of Japan (BOJ) is expected to raise its interest rate by 25 basis points to 0.5%, potentially bolstering the Japanese yen.

Last week, BOJ Governor Kazuo Ueda hinted at the possibility of a rate hike, citing an anticipated inflation uptick in December following the end of energy subsidies.

However, Trump’s inauguration may overshadow the BOJ’s decision in shaping market trends.

The People’s Bank of China (PBOC) will decide on its one-year and five-year loan prime rates (LPR) this week.

Markets widely anticipate that both key rates will remain unchanged for the third consecutive month.

China’s economy grew by 5% in 2024, meeting government targets. Fourth-quarter growth of 5.4% highlighted the effectiveness of stimulus measures in supporting recovery.

Analysts predict further accommodative monetary and fiscal policies in 2025, likely boosting Chinese stock markets and benefiting European consumer stocks.