Weekly Trading Update
Weekly Trading Update 13.02.2023
Week of February 13
Markets fluctuated on the ebb and flow of risk appetite around central bank commentary last week, with little data to support the shift towards data dependency, the theme of the latest round of interest rate hikes. Focus now turns to key macro indicators coming out in the next few days, including Japanese GDP and US and UK CPI.
Top Events in Review
The early part of the week was dominated by the market digesting the surprise jobs numbers reported in NFP, including a drop in the unemployment rate.
- Fed Chair Jerome Powell addressed the data when pressed on Tuesday, suggesting that the Fed could rate higher than currently anticipated if the data didn't improve as expected. Kashkari went so far as to say that more needed to be done to get the labour market under control.
- ECB officials voiced support for further action to curb inflation. Germany finally released its CPI figures, prompting expectations that Eurozone CPI would be revised higher.
- BOE officials testified in Parliament, affirming that more action was needed to get prices under control, with Isabelle Tenreyo standing out as the dovish dissenter.
- Earnings season continued to provide mixed messaging, with markets disappointed by results from Alphabet. The search giant's presentation of a generative AI to compete with ChatGPT had a glitch.
- A massive earthquake in Turkey near the border with Syria weighed on risk sentiment and boosted oil prices as two pipelines were closed. Oil traded nearly 10% higher week-on-week last Friday, with $85/bbl on bulls' radar. $76.50/bbl could offer a bounce if prices slide.
- Germany approved sending 178 first-generation Leopard tanks to Ukraine.
- The UK extended the formation of a government in Northern Ireland by one year.
Top Event in the Week Ahead
Inflation Figures to Dominate Narrative
The US on Tuesday is the first to report CPI inflation, which is expected to see a further deceleration in rising prices. For once, core inflation is expected to reduce faster than the headline, dropping to 5.4% and 6.3%, respectively. US January PPI is also expected to contribute to slowing inflation narrative, expected to come in negative once again at -0.3%. EUR/USD failed to recapture $1.08 at the start of the week, marking a second weekly loss with major support at $1.07. $1.0636 is support below there, with $1.0770 short-term resistance. A surprise leg could see $1.0868, should the CPI data decelerate more than expected.
On Wednesday, the UK reports its CPI figures, expected to remain in double digits but come down by a couple of decimals. UK unemployment is expected to tick up a decimal to 3.8% in data that is also closely relevant to central bank policy. After sliding 2.75% the week before, the pound took a breather around $1.21, printing a mixed week. If data turn out to be supportive, a break of $1.22 could offer an opportunity towards $1.24, with $1.2260 and $1.23 in sight. Otherwise, the focus remains on $1.19.
Japan GDP and US Retail Sales
There has been rampant speculation from the press about who might be appointed to replace BOJ Governor Haruhiko Kuroda but still awaiting official confirmation. Meanwhile, the world's third-largest economy is expected to pull itself out of negative growth late on Monday, with Q4 quarterly GDP forecast at 0.4% compared to -0.2%. It might pull USD/JPY out from its narrow range of 130.00-133.00. 134.50 and 129.00 are levels to keep an eye on.
US retail sales are expected to return to growth on Wednesday after unexpectedly falling in December, forecasting a monthly increase of 0.6%. But that contrasts with the expectation of slowing annual growth to 4.5%. In the UK, retail sales are expected to dive further into negative, forecast at -1.8% from -1.0% prior.
Other Events, Earnings
Tuesday has Westpac Consumer Confidence from Australia. Wednesday includes US industrial production figures. Japan's trade balance comes out on Thursday, along with US building permits. Earnings expected throughout the week include Coca Cola, Airbnb, Tui, Cisco, Shopify, ASML, Applied Materials, Deere, and Nestle.
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