Market news

After a chaotic week of central banks meetings and blockbuster economic data, the risk calendar looks relatively light over the next few days. The rate hike announcements by the Fed, ECB and Bank of England were expected but what they said didn’t convince markets a great deal at the time. The big kicker was Fed Chair Powell’s dovish press conference which sparked a strong rally in risk assets and bonds. He speaks at a conference in Washington overnight on Wednesday where he has the opportunity to clarify his stance. Most expect the Fed Chair to push back against the market reaction after an eye-wateringly strong NFP report and ISM Services print. If he doesn’t, the implication would be that the FOMC remains relaxed about the easing in financial conditions and that rate cuts this year are justified.

The RBA meeting on Tuesday is expected to see another rise by 25bps taking the cash rate to 3.35%. The bank has already lifted rates at each of its monthly meetings, including four 50bp hikes from June to September. The RBA then slowed the pace of tightening in October and pivoted to 25bp hikes with policy arguably in contractionary territory. But the recent inflation data showed that underlying CPI had risen to 6.9% from November’s print of 6.5%. This is clearly going the wrong way for policymakers and more work needs to be done.

Looking ahead, forward-looking indicators are softening with house prices continuing to cool and the full impact of the RBA’s rate hikes still to be felt. The AUD made new cycle highs last week at 0.7157 versus the US dollar but the major plunged after the blockbuster US employment report. Prices have dipped below last week’s low at 0.6983 and next support sits at the halfway point of the 2022 decline at 0.6915.

Earnings from US companies have generally surprised to the upside with more firms guiding higher than had been expected. There’s been mixed results from Big Tech with Meta announcing a leaner and more decisive vision while Apple, Amazon and Alphabet disappointed in their own ways, painting a bumpy picture ahead. The tech-laden Nasdaq’s stellar run looks overbought now and hasn’t been this far above its 200-day simple moving average since January last year. This widely watched indicator currently sits at 11,968, just below the December highs. The next upside level sits just below 13,000.

Major risk events of the week

07 February 2023, Tuesday:

-RBA Meeting: Consensus sees the RBA lifting the cash rate by 25bps to 3.35%. Policymakers have already responded to a significant inflation challenge and the tightest job market in 50 years by quickly raising rates. But the latest rise in underlying inflation means more hikes, with any strong guidance likely to boost the aussie.

09 February 2023, Thursday:

-German CPI: This release is the delayed flash data for January which was postponed for the first time in history due to data processing issues. Economists forecast a strong print above 1% m/m bringing the annual CPI reading to just below 10%. A rebound in energy heating prices is expected after the drop in December. The euro posted a fresh cycle high last week at 1.1032. But the strong jobs data saw a fall towrds 1.08. Next support is 1.0766.

10 February 2023, Friday:

-UK GDP: Growth is expected to have been flat in the fourth quarter which means the economy will narrowly avoid a technical recession. Expectations are for a small contraction in the first quarter of this year and a recession in the first half. But the Bank of England predict it will be one of the shallowest in recent history. GBP tumbled after the BoE meeting and has given back all its gains over the last two weeks. Support sits at the midway point of the 2022 decline at 1.2052.

-Canada Jobs: Most analysts forecast moderate job growth after another stronger-than-expected print of 69k in December. Last year’s average increase in employment was just above 34k. The jobless rate is seen ticking up one-tenth to 5.1%. USD/CAD is back in its recent range after threatening to fall towards 1.3223. Strong resistance above resides around 1.35.