Week of Jan 23

Risk appetite fluctuated between Chinese GDP data coming in above expectations and the US disappointing considerably. Earnings season intensified, with companies largely meeting expectations but key US indices (driven by defence stocks) falling. Focus now shifts to flash PMIs and advance US GDP.

Top Events Last Week

The week started slowly with the US away on holiday, but it ended up being packed with commentary from global political and economic leaders due to WEF at Davos.

Macro data from the US kept a more pessimistic tone, starting with Empire Manufacturing which cratered compared to estimates. This was followed up by slowing retail sales and industrial production, with December PPI coming in negative, and adding to the deflationary narrative guided by negative monthly CPI. The US also officially hit the debt ceiling, potentially leading to a protracted political battle with the new Republican control of the House. 

In Europe, Initial reports that the ECB was considering reducing the pace of rate hikes got pushback at the start of the week. The ECB minutes showed a stronger contingent than expected, favouring higher rates and more tightening. 

Finally, the BOJ left policy unchanged in the penultimate meeting headed by Kuroda.USD/JPY was up 3% at some point mid-week but slid back below 130.00.

Top Events in the Week Ahead

With China closed all week for the lunar new year, Flash PMIs and US GDP are seen as the macro events that could shake up the markets next week. 

Eyes on the US with China Closed for Lunar Year

Flash PMIs in the US is expected to improve marginally but remain firmly in contraction on Tuesday. On Thursday, the US advance GDP is expected to show annualised growth of 2.7%, slowing from the 3.2% reported in Q3. Also on Thursday, durable goods orders are expected to return to positive in December from the negative reading in November. The US will report Personal income (seen slowing) and personal spending on Friday, with the University of Michigan consumer sentiment is expected to improve.

The DXY closed last week mixed, and if 101.50 holds in case of weakness, we could see some respite; otherwise, head toward 100.00. 103.00 is major top before a chance at 104.00.

EZ Services PMI Expected to Return to Expansion

Germany reports GfK consumer confidence on Tuesday and Ifo data on Wednesday, both of which are expected to stage a marginal improvement. European Flash PMIs are expected to improve, too, though remain in contraction on Tuesday. On the other hand, Services PMI is forecast to return to expansion. EUR/USD reached a 9-month high last week but in vain as prices retraced for a mixed closed. $1.09 and $1.08 remains short-term levels to keep an eye on.

BOC Meets to Hike for the Last Time this Cycle

The BOC meets on Wednesday and is expected to raise rates by another 25bps. Although it had signalled that it might pause depending on the data, there must be a solid consensus. The surprise jobs numbers have moved the inclination from pause to hike, but the bank is expected to signal that it will pause. Loonie weakened more than 1% at $1.35 at some point last week, with $1.3380 as a strong base.$1.3565 is the next resistance if demand for CAD wanes further.

Price Tracking Figures in Focus

New Zealand is expected to report slower quarterly inflation on Tuesday, but Australia to see another increase in annual CPI on Wednesday, with quarterly easing. The monthly inflation indicator is expected to rise, too. On Wednesday, the UK PPI figures are expected to slow but remain in double digits, and on Friday, the US PCE price index is expected to fall.

Other Events and Earnings

Monday has Australia NAB Business Confidence and Friday has US pending home sales. 

Earnings season is expected to ramp up considerably, with several notable names reporting, including Microsoft, J&J, Tullow Oil, Verizon, AB Foods, Raytheon, Tesla, ASML, AT&T, Diageo, Visa, Mastercard, Comcast and Chevron.