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Week in Review: 6-10 January 2025

Financial Markets

The first full trading week of the new year was clearly on correction mode on the equity markets. The main stock market indices were down, with the S&P500 and the NASDAQ 100 losing 1.9% and 2.2%, respectively. If the correction continues, the next likely supports on the SPX are around 5780$ and 5650$. The small cap index (Russel 2000) showed even more weakness and a flight to safety mentality, falling 4.2% for the week. Trading volumes were back to normal values, indicating a solid correction which can continue over the next couple of weeks.

The metals were up - gold and silver gained 1.9% and 2.8%, respectively. For the moment being, gold is defending the lower edge of the current trading channel. Silver retraced close to 31$/oz during the week, but is looking weaker and might fall to 28$/oz in the next weeks.

WTI rised 3.4% and is now above the 75$ level. If the moment continues in WTI, it can go up to 82$ over the next weeks before finding significant resistance.

Bitcoin topped out, as predicted, and fell to 95k$. We continue favoring the downside at this point, with the next support at 92k$.

The relative strength of the US dollar (DXY) increased again this week (~110). The EUR/USD is around 1.02$, the GBP/USD is at 1.22$, and the USD/JPY is at 157.7 JPY.

US M2 money supply at the date of 25th November 2024 was up by 0.64%.

The national financial conditions index (NFCI) for the week of 30th December 2024 loosened by 1.4%, which shows a slow but continuous loosening of financial conditions. Note that this indicator is delayed by a week.

US bond yields were up this week, and now sit at 4.383% for the 2-year and 4.763% for the 10-year. The 10-year yield may go up to 4.9-5.0% before stabilizing or falling back down. Such yield increases translate the market expectation that interest rates will not fall as quickly as initially predicted during 2025. We now need to wait for the next FED decision and economic developments.

The VIX spiked up to 20 and ended the week around 19, indicating more fear in the markets and increasing search for put options from the part of investors/speculators. It is becoming a better time to sell option premium.


Comment Section

As expected, equity markets started the trading year with a small correction, accompanied by bond yield increases during the week. The recent US jobs data indicated more job creation in December 2024 than anticipated, which is good for the economy, but may lead the FED to stop cutting rates, which is bad for equities. This is just a data point, thus we will not try to guess what will happen in the economy and interest rates in 2025.

Recently, maritime shipping rates have increased, due to the proximity of the Chinese new year and the anticipation of US tariffs. In a couple of months, this tendency will probably invert, and shippers will have to lower rates as shipping demand normalizes - unless inflation ramps up again!!!
 
We propose that the reader takes advantage of opportunities as they arise, when a particular valuation becomes attractive - from a fundamental and a technical perspective. Keep some cash on the sidelines, because a bigger correction is always a good opportunity to buy.
 
Welcome back, and good luck!!!
 
 

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