Week of Feb 12

With a sparse macroeconomic calendar, markets were able to focus more on geopolitics and corporate earnings. Improving US economic data supported the narrative of a soft economic landing as China grappled with turbulence in its stock market. Looking ahead to the following week, economic activity reports will increase with the release of US and UK CPI as well as GDP figures from Japan and the UK.

Top Events in Review

The strong US jobs report from earlier in the month cast a long shadow, supporting further upside in yields as various Fed speakers dismissed the possibility of an imminent rate cut. The US trade deficit widened marginally, with imports and exports both rising. Initial jobless claims affirmed ongoing labour market strength. At the start of the week, above-forecast US services PMI figures pointed to ongoing inflationary pressures. Megacap company earnings were viewed positively, helping boost sentiment despite gains for the US dollar.

As expected, the RBA left rates unchanged while lowering forecasts for growth and inflation. Retail sales growth slowed to its lowest level in two years. AUDUSD formed a range of 100 pips pending breakout.

Falling Chinese equities remained a theme, with government intervention supporting risk appetite. Chinese inflation fell to its lowest level since 2009.

Crude prices fluctuated on hopes of a Gaza ceasefire, though none materialised, with a final rejection sending prices 2% higher. US inventories unexpectedly increased after a power outage impacted a refinery. WTI has the next temporary stop at around $78 a barrel.

The ECB's survey downgraded inflation expectations, though hawks maintained data dependency around policy moves.

Biggest Market Movers

• The US dollar gained against the Japanese yen as hopes faded around aggressive Fed rate cuts in the near term, with inflation pressures persisting.
• The S&P 500 hit record highs past 5,000, underpinned by corporate earnings beats among large caps.
• Tech-heavy Nasdaq outperformed on results, including Apple, also registered fresh records and a 5-week streak.
• Natural gas futures suffered double-digit drops amid EIA's expected bearish report.

The Week Ahead

Chinese markets will be closed all week for the Lunar New Year holidays, with other Asian exchanges also seeing intermittent closures. Investors will monitor Japan's preliminary Q4 GDP following a Q3 contraction, with a return to growth of 0.4% expected.

US CPI to Guide Markets

The key will be Tuesday's US CPI after various Fed speakers emphasised data dependency but saw inflation persisting. Headline CPI is projected to steady at an annual 3.4%, with the core at 3.7% from 3.9%. US retail sales data later in the week may show moderating monthly demand growth post-holiday. If the dollar weakens, a local low could be in for EURUSD at $1.0725, with $1.0825 potentially acting as a regional top.

Barrage of UK Data

The UK will publish a busy set of economic data throughout the coming week, starting Tuesday with unemployment figures. Analysts' median forecast predicts the gradual loosening in the labour market will continue, with the unemployment rate expected to tick up marginally to 4% from 3.9%. Inflation data will be released the following day, with headline CPI expected to increase slightly to 4.2% from 4% prior, although the core is anticipated to decline to 5% from 5.1% gradually.

On Thursday, flash estimates of UK GDP for Q3 are expected to show the economy remained stagnant at 0% growth, which would mean it avoided falling into a technical recession following -0.1% in the previous quarter. However, any minor mismatch could push the country into recession, and revisions to the prior figure may also impact market reaction. December's monthly GDP is also projected to be flat. Finally, retail sales are forecasted to rebound on Friday, rising 1.2% compared to -3.2% in the prior month. Above $1.25, GBPUSD could extend towards $1.27 if bulls reclaim $1.2642.

Other Events and Earnings

Other releases include Australian consumer confidence on Tuesday, the second estimate of EU Q4 GDP on Wednesday, and Australian jobs data and EU trade balance on Thursday. Friday has US housing starts/permits.

Earnings continue with names like Coca-Cola, Shopify, Airbnb, Cisco, Equinix, Applied Materials, Deere, DoorDash and NatWest scheduled to report.​