Weekly Trading Update 13.01.2023

Week of Jan 16

The FTSE 100 sits near all-time highs while Wall Street also gained, bolstered by falling US inflation data ahead of the FOMC meeting later in the month. More countries report inflation figures next week as earnings season gets properly under way, including results from Netflix.

Top events in review

• The week started with more optimism following the full reopening in China, and the dollar weakened. But several central bank officials on both sides of the Atlantic reiterated that rates would keep rising, putting a damper on risk appetite. 

• US inflation numbers came in broadly as expected, with core slowing less than the headline number. A surprise negative print in the monthly CPI change figure provided a return to optimism near the end of the week. DXY is closer to 100.00 than it has been in nearly a year.

• Crude inventories jumped by the most in nearly two years as US refiners were shut-in from cold weather. But WTI might pay  $80.00/bbl a visit despite missing it initially, as markets appeared more interested in China's import quotas than stockpiles.

• The latest ECB bulletin showed that staff now expected a short, shallow recession at the start of the year. EUR/USD soared to a 9-month high on the back of a weaker dollar.

• More unions announced strikes in the UK as Parliament came back into session; the PM is trying to negotiate with the unions while advancing legislation to stop strikes in parallel.

• The Bank of Japan had to intervene in the bond markets twice to bring the 10-year back within its new wider band of 0.25%-0.50% after it spiked to 0.54%. USD/JPY broke below the 130.00 handle.

Top events in the week ahead

It's CPI week

The release of inflation data is likely to be the theme for the week, as several nations are expected to report the latest CPI figures. The trend is expected to show slowing headline inflation thanks to lower energy costs, but core inflation to remain resilient. 

Canada's headline inflation is expected to fall four decimals on Tuesday, but core inflation to tick a decimal up. USD/CAD formed a double bottom shy of $1.33 last week. Losing it might see an extension down at $1.32, whereas resistance lies at $1.3460.

The next day it's the UK's turn, which is expected to see inflation advancing to another four-decade high, further into the double digits. Core inflation is expected to jump over 200 basis points, putting further pressure on the government. The FTSE might continue its multi year breakout towards the 8k handle, contingent on the figures.

Later that day, the US will report PPI figures, expected to fall into the negative. Japan is expected to confirm preliminary figures for December's CPI change moving up to an annual rate of 4.0%.

China GDP

The world's second-largest economy finally confirmed a date to release its GDP figures. On Monday, the country is expected to report Q4 GDP at 1.8%, leaving a rate of just just 2.8% in 2022, its slowest pace of annual growth since 1976. China will also report another month of negative retail sales growth. USD/CNH has met the golden support at 6.72.

BOJ Interest rate decision

After the BOJ shocked markets by widening the YCC band at the last interest rate decision, it's understandable that there will be a bit of trepidation in the market about whether a new surprise will be announced. The expectation is that Kuroda will stay the course as the BOJ assesses the impact of the latest change, followed by a stronger yen.

Other events and earnings

Monday has Westpac consumer confidence figures for Australia. Tuesday has UK claimant count numbers. Wednesday has US retail sales figures and Japan's trade balance. Thursday has US building permits and UK consumer confidence. Friday has UK retail sales figures. 

Major earnings expected include Morgan Stanley, Goldman Sachs, Repsol, Procter & Gamble, Experian, Netflix, Antofagasta, Schlumberger and Kier.