U.S. Indices saw strong gains on Friday with outperformance in the tech-heavy Nasdaq 100 (+1.7%) supported by gains in Nvidia (NVDA) (+4.5%) and Tesla (TSLA) (+8.3%). Newsflow was sparse to the end the week as participants continued to return from the holidays ahead of risk events picking up this week in the form of FOMC Minutes and the U.S. Employment Report on Friday. Despite saying this, ISM Manufacturing PMI beat on the headline, and above the top end of the analyst forecast range, while internals were more mixed as prices paid rose above expectations and employment disappointed. Out of Washington, U.S. Republican Mike Johnson was re-elected US House Speaker and was then congratulated by President-elect Trump, who had previously endorsed him. On the Fed footing, Barkin (2027 voter) said the baseline outlook for 2025 is positive with more upside risk than downside risks to growth and is in the camp of staying restrictive for longer given possible upside inflation risks. Sectors were all in the green with Consumer Discretionary and Tech outperforming, buoyed by the aforementioned stocks, while Materials was the relative laggard and weighed on by President Biden formally blocking Nippon Steel’s acquisition of US Steel (X) (-6.5%). Elsewhere, the Dollar is lower with Sterling and the EURO as the G10 outperformers and the Canadian Dollar again lagged. Crude prices were firmer and extended higher throughout the US session, given the broader Dollar weakness and ongoing geopolitical concerns. Lastly, T-Notes ultimately saw slight weakness after ISM beat ahead of supply, FOMC Minutes and NFP this week. The ISM Manufacturing PMI beat on the headline, rising to 49.3 from 48.4, above the consensus, 48.4, and above the top end of the analyst forecast range. New Orders rose to 52.5 from 50.4, while production rose to 50.3 from 46.8, returning to expansion after six months in contractionary. Elsewhere, prices paid rose to 52.5 from 50.3, above the 51.7 forecast but within the 49.0-53.5 range. Employment, meanwhile, ahead of NFP this week, fell to 45.3 from 48.1, beneath the 48.0 consensus and the analyst forecast range. It also highlighted that of the six large manufacturing sectors, not a single one expanded employment in December. Overall, the upside in new orders and production is encouraging, although the downbeat employment metric is a concern. Looking ahead, amid the threat of Trump tariffs, ING writes that “US manufacturing activity looks set to remain subdued at least until there is some clarity on the trading environment they face.” Meanwhile, Fed Member Barkin said the baseline outlook for 2025 is positive with more upside risk than downside risks to growth, noting how as long as employment and asset values remain strong, consumers will spend. He acknowledged the labour market is more likely to break towards increased hiring than towards layoffs. On inflation, Barkin says there is still more work to do as it is not yet back to target, while there are also some potential upside risks to inflation. Barkin still perceives core underlying inflation is coming down nicely, and the message from businesses is loud and clear that consumers are becoming more price sensitive. He expects 12 month inflation to decline in the coming months, particularly given base effects over the prior year. Barkin is in the camp of staying restrictive for longer due to possible upside inflation risks, and noted the conditions for cutting rates again include confidence in inflation’s return to 2% or weakening of demand. He noted how the Fed is well positioned to respond to economic developments, but added the story of 2025 will be less about monetary policy and more about economic fundamentals, and perhaps geopolitics. He said that uncertainty in financial markets appears to have fallen and the market predicted policy path seems aligned with the Fed median. Elsewhere, Oil closed 1.13% higher while Gold ended Friday with a small 0.6% gain following a trading session that witnessed plenty of two-way price action.
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