Week of Feb 5 

Both the Fed and BOE surprised markets by adopting a more hawkish stance than anticipated in their recent meetings. A quieter economic calendar follows next week, focusing on trade data ahead of China's new year.

The Week in Review

The Fed repeated its pledge to keeping interest rates high until inflation comes down, disappointing markets hoping for an imminent rate cut. Chair Jerome Powell's unusually explicit remarks all but ruled out a March hike, leading to market repositioning. US equities recovered losses following Wednesday's meeting after initial jobless claims came in above expectations and ISM suggested weaker demand, with the S&P 500 targeting 5K next while bias remains bullish above 4840.

On Thursday, the BOE kept rates on hold as anticipated, but the split decision of its MPC saw two members vote for a hike and one for a cut, a situation not witnessed since mid-2008. The British Pound reversed from weekly lows at 1.2626 towards 1.28 against the US Dollar, but momentum waned mid-way.

Technology giants released disappointing earnings updates, while a regional bank reported losses due to commercial property exposure, dragging on the banking sector.

Meanwhile, the Eurozone avoided falling into a technical recession thanks to prior quarter revisions, though reported negative growth in the final quarter, and inflation aligned with forecasts showing an ongoing slowing of price rises. Throughout the week, a wide variety of public statements from ECB speakers demonstrated divisions between more hawkish and more dovish positions, with many emphasising that further data is required before a change in monetary policy should be considered.

OPEC+'s monthly meeting concluded without any alterations to production quotas, but Saudi Aramco announced plans to reduce its own production capacity to 12 million barrels per day from 13 million barrels per day previously.

The US Treasury Department surprised markets with its quarterly debt issuance plans, revealing that it expected to borrow less in the first half of the year than had been anticipated, contributing to a downward trend in yields on 10-year US government bonds over the course of the week.

Biggest Market Movers

Gold revisited 2024 highs following a 4-day streak by Thursday, rising to $2065 an ounce for a more than 2% gain to the peak, as US bond yields remained under pressure following a smaller-than-expected issuance forecast from the Treasury and the dollar's weakness.

WTI lost over 6% after failing to extend gains to $80 a barrel early Monday, trimming more than $5 off its value to a trough of $74.

The Japanese yen gained ground amid reports that the BOJ trimmed its bond purchase programme and remarks from former officials implying that economic conditions are moving towards normalisation. However, the USDJPY forex pair found support at 146, receiving a rejection.

Top Events in the Week Ahead

With a lighter economic calendar, the focus may turn to corporate earnings updates. Of note is a series of international trade reports and the upcoming RBA meeting.

Investors have priced in potential easing by the RBA in light of slowing inflation; however, peers' more hawkish stances of late point to possible surprises. Prior to the meeting, Australia will publish trade data where analysts foresee a substantial shrinkage in surplus. Following a November low of 0.65, AUDUSD could extend its most recent gains to 0.6650.

Likewise, Germany and France are anticipated to report export declines and surplus reductions, respectively, reflecting the impacts of global supply issues. This will be the first trade report with a full month of the effects of the Red Sea crisis and as the Euro Area teeters on the edge of a recession. If the bulls can reclaim 1.09 in EURUSD, only a move past 1.095 would increase the chances of reaching 1.10 again. Otherwise, December's low of 1.078 could be revisited.

Canada, however, may post an expanded surplus amid ongoing strong demand from its largest partner, the United States. Below 1.3435, USDCAD remains under threat of extended losses under 1.33. The US trade deficit is also projected to remain steady as higher imports offset increased exports.

Other Events and Earnings

Monday sees the release of the ISM Services PMI for the US. Tuesday has Canada's Ivey PMI. The UK's BBA mortgage approvals are scheduled for Wednesday. Thursday notes Japan's current account and China's inflation. Friday concludes with Canadian employment data and Germany's final inflation reading.

Earnings season will continue, with several prominent firms reporting, including McDonald's, Caterpillar, Eli Lilly, Linde, Alibaba, Disney, Uber, S&P Global, Philip Morris, Unilever, AstraZeneca, Pepsico and Enbridge.