Global equity funds saw significant inflows during this week, rebounding sharply from the previous week’s net outflows. This turnaround was supported by a favorable U.S. inflation report and relief over the avoidance of a government shutdown in Washington, which helped restore investor confidence in risk assets. U.S. equity funds attracted $20.56 billion, marking their seventh inflow in the past eight weeks. European and Asian funds also experienced robust inflows, signaling broad-based optimism in global markets.
The U.S. dollar appeared poised for a nearly 7% annual gain as of Friday, while Japan’s yen faced its fourth consecutive year of depreciation. Traders are increasingly betting on strong U.S. economic growth to keep the Federal Reserve cautious about rate cuts, potentially delaying any reductions until well into 2025.

Asia-Pacific Markets
Data from Japan revealed mixed signals for its economy. Core inflation in Tokyo accelerated in December, while services inflation remained steady, sustaining expectations of a potential near-term interest rate hike by the Bank of Japan (BOJ). However, factory output declined in November for the first time in three months, reflecting the adverse impact of waning overseas demand on Japan’s export-driven economy. These economic indicators will likely play a key role in the BOJ’s policy decisions during its next meeting on January 23-24. Some analysts forecast a short-term interest rate hike, while others caution that economic weakness and subdued price momentum may delay such a move.

European Markets
In Europe, traders are pricing in a 37-basis-point cut in U.S. interest rates by 2025, with the first reduction expected no sooner than June. By then, the European Central Bank (ECB) is anticipated to have reduced its deposit rate by a full percentage point to 2% as the eurozone economy slows. Meanwhile, U.S. Treasury trends influenced eurozone bond markets, with Germany’s benchmark 10-year bund yield climbing 5 basis points to 2.372% on Friday.

American Markets
The dollar index, which tracks the greenback against a basket of major currencies, rose 0.08% on Friday to 108.16, marking a 2.2% monthly increase and setting the stage for a 6.6% annual rise. Federal Reserve Chair Jerome Powell reiterated earlier this month that the central bank remains cautious about further rate cuts, following a quarter-point reduction in line with expectations. Additionally, the U.S. economy is bracing for the potential impacts of President-elect Donald Trump’s administration, which is set to implement policies such as deregulation, tax cuts, tariff hikes, and stricter immigration controls. These measures are widely regarded as both pro-growth and inflationary, adding another layer of complexity to the Federal Reserve’s cautious approach.