Market news

Risk events pick up this week with major central bank meetings in Europe, Japan and Canada all expected to stand pat on policy changes. Markets have been adjusting this year to what officials have been saying and the resilient recent US data in the labour market and retail sales, which have highlighted that policy easing may not be needed for some time. The chances of a March Fed rate cut, have been slashed from above 80% only a week or so ago to just less than a coin toss on Friday.

Investor will eye the US GDP data on Thursday which is likely to remain respectable and further reduce the pressure on the FOMC to kick off the easing cycle. Consumer spending, which accounts for over two thirds of GDP, is expected to have continued to increase at a solid pace. In fact, there seems to be more chance of an upside surprise than a disappointment, as the Atlanta Fed GDPNow model estimates growth at 2.4%, which is much higher than the official forecast. Core PCE data released on Friday is the most important inflation measure for monetary policy and should come in below 0.2% for the sixth month out of the past seven, potentially cementing the “soft landing” theme.

ECB officials were out in force last week pushing back on early rate cuts and stressing that the Governing Council would prefer to wait for the results of wage negotiations before reducing policy rates. The region remains in stagnation mode, with neither a full-blown recession nor positive growth on the horizon. But it will most likely be too early for policymakers to declare victory on inflation, with the bank stressing its data dependence at this week’s ECB meeting.

The Bank of Japan is again set to keep its ultra-accommodative stance with the policy setting of negative rates at -0.10%. Officials reiterated their dovish forward guidance in December and market expectations of an early exit from current settings have faded. Any downward changes to the bank’s inflation projections in the outlook report will be seized upon by investors. But expectations for policy normalisation are likely to ramp up into the Spring when wage negotiations begin.

Stock markets Stateside made fresh record highs last week as the tech rally pushed the major indices higher. Fourth quarter earnings breadth picks up this week with 75 S&P 500 firms releasing across multiple sectors. Tesla will no doubt grab the headlines as its shares struggle this year compared to the other tech giants involved more directly in Artificial Intelligence. Competition from rival electric vehicle makers, especially in China, is a headwind with BYD recently overtaking the Elon Musk-led company in vehicles sold in the final quarter of 2023. Major support sits around $200 on the Tesla chart and is the midpoint of last year’s rally.

In Brief: major data releases of the week

23 January 2024, Tuesday

– Bank of Japan Meeting: All policy measures are expected to remain unchanged. The recent earthquake, together with the disinflation trend will likely keep policymakers in a patient mood. Recent core CPI saw its slowest y/y growth since June 2022.

24 January 2024, Wednesday

-Eurozone PMIs: Manufacturing is forecast to remain deeply in contractionary territory with higher costs still a headwind, though the sector may have troughed. Services weakness is seen continuing as consumers continue to feel the pinch from record-high borrowing costs. The euro may test support again around its 200-day SMA at 1.0845 on very weak figures.

-The Bank of Canada: The BoC will leave rates at 5% and may keep a relatively hawkish tone. This is due to recent inflation data that saw core measures tick up. But the bank’s latest business survey pointed to cooling demand.

25 January 2024, Thursday

–German IFO Business Survey: Expectations are for a small uptick in the January print to 86.9 from 86.4. Germany skirted recession at the end of 2023 but remains in a prolonged slump.

–ECB Meeting: No changes are anticipated with little new information since the December meeting. President Lagarde recently said the bank remains data dependent, with new staff projections and more data available in the spring.

–US Q4 GDP: Consensus sees around trend growth of 1.9% after the blockbuster 4.9% in Q3. The resilient labour market is supporting the consumer, though slack is building and likely to push growth below trend in 2024. The Dollar Index has hit the 200-day SMA at 103.46. A consensus beat could see an upside break towards the 50% mark of the November sell-off near 104.

26 January 2024, Friday

–US Core PCE Deflator: The Fed’s favoured inflation gauge is predicted to print at 0.2%. It has been trending lower than the CPI reading and in line with prices moving back to the Fed’s 2% target over time. Supply chain disruptions could be an issue further out.