Weekly Trading Update 06.02.2023

Week of February 6

The "big three" central banks all delivered rate hikes within expectations, and now the markets get a week of relatively few major economic data points to adjust as the focus turns to commodities and progress in China's reopening. 

Top Stories in Review

• Risk appetite was boosted midweek following the FOMC's monetary policy meeting, where it hiked rates by 25bps as expected. The comments by Fed Chair Powell ended up hurting the dollar and supporting stocks, as it was heavily implied that the Fed was near the end of its rate hike cycle. S&P and Nasdaq soared comfortably above the 4k and 12k handle, with 2480 and 13235 in focus next.
• The BOE also provided a dovish tone after hiking 50bps as expected but in the shifting vote count. After the meeting, Governor Bailey emphasised the changed wording in the policy statement, implying that the terminal rate was near. FTSE got a boost but remained below the peak of 7875.
• The ECB hiked by 50bps and doubled down on further rate hikes of a similar calibre to be expected in the coming months. Euro hit a multimonth high above $1.10 but ended up evaporating more than 100 pips by the week's close, which might encourage additional bearish bets.
• Initial media reports that the UK and the EU were near a deal on Northern Ireland were later dismissed. 
• German preliminary GDP came in negative, while EuroZone flash Q4 GDP came in positive, aided mainly by extraordinary technical growth in Ireland. 
• The IMF published its World Economic Outlook, suggesting that the worst of the economic slump was in the rearview mirror.

Top Stories for the Week Ahead

More Rate Decisions

The RBA is also expected to hike interest rates by another 25bps this week, following an unexpectedly high fourth-quarter CPI print. But there is a lack of consensus on whether rate hikes will continue, with increased scrutiny on comments to see if the RBA telegraphs a pause in light of the job market's weakness. Aussie formed a doji formation under the 0.7158 top, with the 70 cents back in the spotlight. A series of emerging market interest rate decisions from India, Poland, Mexico and Russia take centre stage too.

Trade Figures Could Weigh on FX

Australia will also report its latest trade balance figures, which are expected to show a shrinking surplus, even as relations between Canberra and Beijing are seen improving. Canada's trade balance is expected to return to surplus following the end of holiday shopping. Loonie had a volatile week, with $1.3262 and $1.34 in focus. Meanwhile, the US trade deficit is expected to widen again, which could be seen as improving consumer demand, as the latest GDP figures got a boost from falling imports. The UK's trade deficit is also expected to expand.

UK Could Escape a Recession

The week closes with the first look at Q4 UK GDP, which is expected to show quarterly growth of 0.1% compared to -0.3% in the third quarter. Annual growth, however, is expected to crater to -0.2% from 1.9% prior. At the same time, the UK will also report Manufacturing Production, which is expected to fall further into the negative compared to the preceding year. After falling deep in the lower $1.22 territory, the focus shifts to the $1.20 handle on the one side. Upwardly though, the peak at $1.2448 remains comfortably far, with $1.23 a more likely resistance alternative.

Other Events, Earnings

Monday has Canada Ivey PMI figures. Tuesday sees the UK Halifax House price index. Japan's current account is published on Wednesday. Friday has final German CPI figures, Canadian unemployment and Michigan consumer sentiment. Earnings include reports from Activision Blizzard, BP, Disney, CVS, AbbVie, Pepsico, AstraZeneca, Paypal and British American Tobacco.