Week of Jan 22

Last week began cautiously as mixed signals emerged from major economies. Fed officials pushed back on expectations of imminent interest rate cuts, while China's Q4 GDP growth was below forecasts, and UK inflation exceeded expectations.

A busy week lay ahead with monetary policy meetings scheduled at the BOJ, BOC, and ECB and the release of preliminary US Q4 GDP figures.

Top Events in Review

With US markets closed on Monday for a public holiday and corporate earnings slowing, the World Economic Forum (WEF) provided an opportunity for officials to comment on economic conditions.

ECB members insisted it was too early to discuss rate hikes, while several FOMC members disputed market expectations of aggressive rate cuts in 2024. Mixed results from major US banks saw US bond yields rise gently.

The US Empire State Manufacturing index fell to its lowest level outside the pandemic. Global recruiter Hays joined others in revising forecasts downwards, citing challenging economic conditions. However, the Fed's Beige Book reported that economic activity remained steady. On the plus side, US Retail Sales exceeded forecasts with the strongest increase since September, and US Congress advanced stop-gap funding to avert a government shutdown.

Geopolitical tensions featured prominently, with attacks and counterattacks between Iran, Iraq and Pakistan. WTI rose some 2% but remains consolidated in a 5-dollar range above $70/bbl.

Biggest Market Movers

• The US dollar gained over 1% to 103.30 on revised rate cut views following comments by Fed officials but eased off under the round resistance by the week's close.
• Higher yields weighed on the price of gold throughout the week, with $2K in focus next week due to a weak initial attempt to retest it.
• US stocks declined mid-week, with the technology-heavy Nasdaq reversing near week-end to hit record highs past 17K.
• The yen weakened most against currencies as economists predicted no imminent shift in policy for Tuesday. USD/JPY ended the week over 2% higher, bringing 150 back into the spotlight.
• Commodity currencies lagged, with the Australian dollar hampered by loosening employment data, reporting the 3rd week in red and under risk of losing 66 cents for good.

The Week Ahead

The week ahead promises to be busy, with central bank rate decisions of note from several quarters.

Central Banks in Focus

The ECB widely anticipates leaving interest rates unchanged, but recent polling of economists suggests the first rate cut may materialise sooner than previously forecasted. Most experts polled believe the bank could move towards easing as early as Q2. 1.085 remains a strong support to keep an eye on in EURUSD, with 1.10 breaking offering a chance at 1.1039.

The BOJ  is also expected to maintain the status quo on policy rates, though the focus will be on any signals around the potential timing of a shift towards tighter monetary conditions post-March. Some analysts speculate that the bank may choose to retire its yield curve control policy as an initial step prior to raising rates.

With inflation in Canada coming in above estimates and swaying market views on subsequent cuts, the BOC is likewise projected to hold a pat for now, though scrutiny will be on whether their assessment of price dynamics has altered. If 1.35 gives in, USDCAD could witness an attempt at 1.3580 as it maintains support at 1.34.

US Q4 GDP and Outlook

A host of important American economic reports are slated for release over the coming days, headlined by Q4 GDP figures. Annualised GDP growth is forecast to moderate to 2.3% in the final three months of last year, a slowdown versus the 4.9% expansion witnessed in Q3. Investors will also parse durable goods orders published concurrently for clues about the gradualness of an economic landing. Core personal consumption expenditures, the Fed's preferred inflation metric, are due and expected to be flat month-on-month. Releases covering personal income levels and consumer spending are rounding out the data-packed week.

Global Flash PMIs: The Slow Road to Recovery

Wednesday will see the release of preliminary PMI figures across several major economies. Attention will likely centre on Germany, Europe's largest economy, which reported overall contraction throughout the previous year. While manufacturing PMI is anticipated to improve marginally, readings are still projected to remain well within contraction territory. France is also forecast to exhibit a similar narrative, with slight advancement in manufacturing offset by the ongoing downturn.

The UK manufacturing sector is also expected to improve but remain within contraction, though not to the same degree as its continental counterparts have faced. With 1.26 retested, failing to reclaim 1.2829 may exert pressure on the cable.

Other Events, Earnings

The week includes additional significant economic data releases and corporate reporting. On Monday, China's loan prime rates will be announced. Australia's NAB business confidence index follows on Tuesday. Japan's trade balance is scheduled for Wednesday. Germany's influential Ifo business climate index is projected for Thursday. German consumer sentiment, as GfK measures, is tabulated on Friday.

The pace of quarterly earnings reports is anticipated to accelerate substantially across numerous large multinational firms, such as United Airlines, Microsoft, Johnson & Johnson, Netflix, General Electric, Tesla, ASML, AT&T, Visa, Intel, T-Mobile, American Express and Colgate-Palmolive.