Money Talks Report 07/Feb/2025.

?? Market Report.

?? The Bank of England (BoE) cut interest rates by a quarter-point to 4.5%, but some policymakers wanted a bigger move to offset the economic slowdown. The BoE halved its 2025 growth outlook, a blow for the finance minister who is pushing to speed up the economy, and said inflation would be almost double its 2% target this year. The surprise vote split, with two policymakers seeking a 0.5% cut, initially led to expectations of faster rate cuts, but the BoE's communications were seen as more hawkish. Inflation is expected to peak at around 3.7% in the third quarter of 2025 due to higher energy prices and other factors, up from a previous forecast peak of 2.8%. The BoE forecasts show inflation not returning to the 2% target until the end of 2027.

???? British companies' expectations for wage growth fell marginally in January, down 0.1 percentage points to 3.9% over the coming year. Expectations for employment growth also declined, in part due to a looming increase in payroll taxes. Almost two-thirds of companies expected to lower their profit margins and 56% said they would raise prices in response to the payroll tax change. The slightly higher inflation expectations indicate companies may try to pass on at least some of the increased labor costs to consumers through price hikes.

???? Today we have the US employment report. The unemployment rate is expecting to remain at 4.1% amid historically low layoffs, with wages rising solidly, which is driving the economic expansion and giving the Fed room to pause rate cuts. The final employment report under former President Biden's administration is expected to show slower job growth from April 2023 through March 2024 than previously reported. While the January employment report may show slower job growth, the Fed is unlikely to resume interest rate cuts in the near term due to the resilience of the labor market.

???? European Union cars and industrial machinery risk being subject to U.S. tariffs if President Trump pursues a targeted approach against the bloc, according to research by Bloomberg Economics. Based on this, the researchers identified 8 countries he could focus on, including Germany, Ireland, and Italy. The automotive and industrial machinery sectors are seen as more vulnerable to potential U.S. tariffs, as the disruption to the pharmaceutical industry may be too disruptive for the U.S. The researchers suggest Trump may try to encourage American consumers to swap European cars like Porsches for American models like Corvettes through the use of targeted tariffs.

?? European companies are increasingly choosing to list in the US, as they struggle to access proper funding and growth capital in Europe, where markets have failed to keep up with the needs of businesses. US stocks trade at a near 60% premium over European stocks on average, creating a valuation gap that is drawing European firms to the more lucrative US markets. Europe's fragmented and low-liquidity markets, defined by a patchwork of exchanges and clearing houses, are struggling to grease the wheels of commerce and keep up with the global competitive landscape. The crisis is becoming more pressing as competition intensifies, with Donald Trump's return to the White House.

?? The ECB is renewing its staff and boards. An ECB with up to 7 new members could be more prone to making mistakes, as the new policymakers' views and policy stances may be less clear initially. The changes come at a critical juncture, as the ECB is already struggling to provide clear guidance on the path and destination of its monetary policy. While continuity at the ECB is expected to be maintained, the balance between hawks and doves may shift, potentially leading to more heated debates, especially around the neutral interest rate. The changes come at one of the most sensitive moments for Europe, the trade war.

?????? Market View:

?? Let's pay close attention to the US employment data today. The S&P 500 futures could be forming a triple top according to the charts, which could start a bearish correction. Yesterday, the index barely advanced and remains static at around 6,100 points, awaiting the data. NASDAQ 100 futures are in a similar situation, failing to break through 21,900 points.

?? The dollar index (DXY) is still struggling to stay above 108 points. It is currently trading at 107.80, but a strong jobs report could push it back up. In fact, the EUR/USD pair, despite having recovered slightly, is still following a downward trend and could fall again, taking the pair to levels close to 1.02.

???? The European stock market, on the other hand, remains oblivious to these dynamics. Once again, the DAX 40 is reaching new all-time highs, currently standing at over 22,000 points.

??? Crude oil continues its downward trend. Yesterday, a barrel of Brent fell to $74, although in the last few hours it has experienced a slight rebound and is now trading at $74.70. However, its graphic structure continues to show bearish pressure.

?? The gold market remains solid, trading close to $2,900 an ounce, a level it surpassed for the first time on Wednesday. Currently, the price is around $2,885.

? As for Bitcoin, a possible fall seems imminent. The asset is alternating increasingly weak stretches with corrections. On intraday charts, its 55-period moving average has crossed below the 200-period average, which could indicate further corrections in the coming hours. The key level remains to stay above $92,000; if it loses this support, it could face a severe correction that could take its price even closer to $72,000.

?? Geopolitics:

?? Trump's announcement of the construction of a commercial hub on the ruins of Gaza unleashes diplomatic chaos. Israel orders the army to prepare a plan to allow Palestinians to leave Gaza by land, sea, and air. However, The United Kingdom says it opposes any attempt to forcibly displace Palestinians from Gaza to other countries. European Union rejects Trump's proposal to occupy Gaza and resettle Palestinians. Donald Trump says Israel will hand Gaza over to the U.S. after the war, and no U.S. troops will be needed. On the other hand, Jordan is ready to declare war on Israel if Palestinians are forcibly expelled into its territory and China says Gaza belongs to the Palestinians and is their land, not a bargaining chip in political deals.

?? Journalists, NGOs and various woke organisations around the world are left without funds following the freezing of USAID funds. Some of these organisations would have been described as political interference in Europe by the most conservative groups. Elon Musk has called USAID a criminal organisation.

?? President Donald Trump has signed an executive order imposing sanctions on the International Criminal Court (ICC), accusing it of “overreach” for issuing arrest warrants against Israeli Prime Minister Benjamin Netanyahu.