Central banks across Europe and the UK are laying out the blueprint for their possible policy changes for the rest of the year. The European Central Bank (ECB) is expected to cut rates four times, reducing them to a range of 2.2-2.8% by summer from the current 3% level. In contrast, the U.S. Federal Reserve is being cautious, with the strong addition of 256,000 new jobs and treasury yield printing higher. UBS analysts believe there is room for the Fed to cut rates by half a percentage point later in the year, but only if inflation shows signs of settling. In the UK, higher government borrowing costs are straining the economy, leading UBS to predict that the Bank of England (BoE) will begin cutting rates as early as February.

The equity market opened the week with a mixed performance, as the Dow gained over 350 points while the Nasdaq dipped, suggesting a continuing shift from tech to non-tech sectors. It was an apparent issue just last month after rumours of slowing rate cuts that were just now exacerbated by high bond yield. Investors are laser-focused on the consumer inflation report and the start of earnings season, with major banks set to report in mid-February. Notably, stocks like CVS received upgrades from Wells Fargo, while Moderna's shares plummeted after the company reduced its sales forecasts.

Gold prices experienced a decline late last week following a strong U.S. jobs report, which propelled the dollar to its highest level in two years. This downturn also reflects some profit-taking after a strong week for the precious metal. However, gold remains an attractive investment given the risks surrounding Trump's tariff plans. Investors are now closely monitoring U.S. inflation data, jobless claims, and retail sales for insights into the Federal Reserve's next moves, which will influence gold prices as they enter a period of consolidation.

Source: Reuters, FRED
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