US Treasury yields remained steady, stocks rose, and the dollar weakened. Oil fell after Trump's comments, while gold and Bitcoin continued to rise. Market concerns persist.

US Treasury bond yields finished the week largely unchanged, despite opening considerably lower following President Trump's inauguration. Real yields on 30-year Treasuries reached their highest levels since 2008. This trend underscores that the recent uptick in benchmark rates appears to be largely decoupled from long-term inflation expectations, reflecting concerns over increased debt issuance and growing fiscal deficits.

US stock markets closed the week in positive territory, with all major indices advancing by over 1%. Small- and micro-cap stocks rose by 1.43% and 2.45%, respectively, while large-cap stocks gained 1.75%. The "Magnificent 7" stocks increased by 1.60%. Investor sentiment remains positive, bolstered by confidence in the new administration. However, it is important to note that the S&P 500’s price-to-earnings (PE) ratio is above 21x, with the "Magnificent 7" nearing 30x, suggesting potential overvaluation in the market.

The US dollar weakened against the euro, falling to 0.959889. Crude oil prices (WTI) dropped by 4.41%, exacerbated by President Trump’s comments at the World Economic Forum in Davos, where he indicated that he would urge Saudi Arabia and other OPEC members to reduce oil prices. Gold prices increased by 1.36%, marking their fourth consecutive week of gains and approaching record highs. Meanwhile, Bitcoin surged by 9.90%, extending its rally for a second consecutive week and remaining close to its all-time high.

Trump’s policies reshaped trade, immigration, energy, and governance, with tariffs, a hiring freeze, and stricter immigration laws. Business growth slowed, while inflation and consumer concerns rose.

President Trump’s policies focused on "America First," reshaped U.S. trade, immigration, energy, and governance. Key trade investigations targeted imbalances, especially with China, Canada, and Mexico, potentially leading to tariffs on imports like steel. The administration also introduced the Department of Government Efficiency to streamline operations and reduce spending, while implementing a federal hiring freeze and mandating in-office work. On foreign policy, Trump threatened sanctions on Russia over the Ukraine conflict and reinstated strict immigration policies, including an asylum ban and border wall funding. He also withdrew from the Paris Agreement and reversed environmental regulations. Business activity showed signs of slower growth, with the U.S. Composite PMI falling to 52.4 in January, driven by inflationary pressures and labour shortages, though manufacturing showed modest improvement. Consumer sentiment dropped 4%, with rising concerns about unemployment and inflation, while inflation expectations surged. Despite challenges, optimism remained about job growth and future production under Trump’s policies.

President Trump’s inauguration introduced sweeping policy changes in trade, immigration, energy, and governance, emphasizing "America First," reshaping global relations and reversing prior administration initiatives.
President Trump’s inauguration marked a pivotal shift in U.S. policy across several areas, including trade, immigration, energy, and federal governance. A comprehensive trade investigation was initiated to address trade imbalances, unfair practices, and economic security concerns, particularly with China, Canada, and Mexico. This review will assess key trade agreements, such as the USMCA, explore potential tariffs, evaluate intellectual property protections, and consider import restrictions on critical materials, including steel, aluminium, and national security technologies. A key deadline in April will determine the findings, with Trump possibly invoking the International Emergency Economic Powers Act (IEEPA) to impose immediate tariffs without Congressional approval, a controversial yet precedent setting move. Proposed tariffs of up to 25% on imports from Mexico and Canada could disrupt supply chains and increase consumer costs, particularly in the agriculture, automotive, and industrial sectors. These actions reflect the administration’s “America First” agenda and signal a shift in global trade dynamics.
In reshaping the U.S. government, President Trump introduced the Department of Government Efficiency (Doge), led by Elon Musk, to streamline operations and reduce federal spending. He also implemented a freeze on federal hiring, with exemptions for military and critical sectors, and mandated the return of federal employees to in-office work. Additionally, Trump signed an executive order aimed at protecting free speech, instructing the Attorney General to investigate prior administration officials’ actions, and issued directives to prevent the “weaponization” of government against political opponents.
On foreign policy, Trump threatened additional sanctions and tariffs on Russia should President Putin fail to reach a resolution on the war in Ukraine. While trade between the U.S. and Russia is limited, these sanctions may serve as a symbolic gesture rather than an impactful measure.
Regarding immigration, Trump reinstated stringent policies, including a ban on asylum seekers at the southern border, suspension of refugee admissions, a national emergency declaration for border wall funding, and a call for the end of birthright citizenship. On energy, the administration withdrew from the Paris Agreement, declared a national energy emergency, repealed clean energy regulations, and reopened federal lands to oil, gas, and mining projects. Federal diversity programs were also terminated, recognizing only two sexes and eliminating protections for transgender individuals in federal prisons.
The administration additionally launched a review of the TikTok ban, referenced the World Health Organization, and pursued symbolic measures such as renaming national landmarks. These initiatives underscore Trump’s commitment to his campaign promises and his drive to reshape U.S. domestic and international policies.

US Composite PMI dropped to 52.4 in January, signalling slower growth. Employment surged, inflation rose, and manufacturing saw modest improvement amid ongoing labour and cost challenges.

US Composite PMI data revealed a slowdown in output growth, with the composite PMI falling to 52.4 in January from 55.4 in December, marking a nine-month low. Service sector activity decelerated, dropping to a nine-month low of 52.8, its slowest pace since April, while manufacturing output saw a modest improvement, rising to 50.2 from 47.7, the first increase in six months. Employment surged at the fastest pace in two and a half years, with firms adding jobs at the steepest rate since mid-2022, driven by optimism about the new administration's policies. However, inflationary pressures mounted, with input costs and selling prices rising at the fastest rates in four months, signalling heightened cost pressures. Manufacturers reported a slight return in new orders, with a modest increase in new orders for the first time in seven months, supported by improved domestic demand. Confidence about future output remained high, particularly in the manufacturing sector, where optimism surged to its highest level since March 2022. The service sector's optimism eased from December's high but remained robust. Despite employment growth, challenges like labour shortages and rising costs persist, with inflation hitting a four-month high, particularly in raw material prices and wages. This combination of growth, labour shortages, and price pressures raises concerns that the Federal may adopt a more hawkish stance on monetary policy in the coming months.

We believe the Trump administration could stimulate production and boost consumption, potentially generating more jobs. However, slight inflation increases may dampen this optimism.

Consumer sentiment dropped 4%, with rising concerns about unemployment and inflation. Expectations for both short- and long-term inflation increased, driven by fears of future price hikes.

Consumer sentiment declined for the first time in six months, dropping 4% from December. While personal financial assessments improved for the fifth consecutive month, all other components of the index fell, with declines seen across income, wealth, and age groups. Buying conditions for durable goods softened but remained about 30% better than six months ago, as many consumers continue to view purchasing now as a way to avoid future price hikes. Despite reporting stronger incomes, concerns about rising unemployment grew, with 47% of consumers expecting unemployment to increase over the next year, the highest level since the pandemic recession. January’s data, which closed on Inauguration Day, reflects the ongoing refinement of consumer views as Trump's policies are clarified. Year-ahead inflation expectations surged from 2.8% to 3.3%, the highest since May 2024, and above the pre-pandemic range of 2.3-3.0%. Long-run inflation expectations also increased from 3.0% to 3.2%, mirroring the November 2024 level. These expectations rose across income and educational groups, with widespread concerns about future inflation, linked to anticipated policies such as tariffs. Consumers continued to express intentions to buy in advance to avoid higher prices, and strong auto and retail sales data suggest they are acting on these beliefs.

We anticipate a further decline in consumer confidence before sentiment begins to recover and expect inflation to rise slightly in the near future.