Weekly Trading Update 30.01.2023

Week of Jan 23

After a few days of generally disappointing data and corporate reports, markets recovered some optimism towards the end of the week following better-than-expected GDP numbers from the US. Now focus turns to a series of central bank decisions, expected further policy tightening.

Top Events Last Week

News over the week was slightly lopsided, with China closed all week for the lunar new year holiday. Several major Asian bourses were also closed for some days, and the Fed entered its blackout period ahead of this week's policy meeting. 

• Earnings dominated the narrative, with more companies reporting job cuts, but US indices closed higher, led by tech, despite the currencies markets ending the week relatively flat.
• The US reported advance Q4 GDP growing at an annualised rate of 2.9% compared to the 2.6% expected. 
• Various ECB members made a case for raising rates in the coming months ahead of this week's policy meeting. 
• Following extensive intervention by the BOJ, the JGB fell to a one-month low at the start of the week. 
• As expected, the BOC hiked rates by a quarter point, saying there likely would be a pause at the next meeting. 
• In geopolitics, allies finally pressured Germany into allowing the reexport of Leopard 2 tanks to Ukraine, which would go along with almost three dozen Abrams tanks. 
• Reportedly OPEC+ delegates will recommend keeping production steady at the February meeting. 
• Australia's CPI came in much higher than expected, with Aussie comfortably above 70 cents. Across the Tasman Sea, New Zealand swore in a new PM following Jacinda Ardern's surprise resignation before the general election later this year.

Top Events in the Week Ahead

Central Banks at the Forefront of Markets

Central bank meetings are expected to dominate the markets this week, with the Fed, ECB and BOE all expected to hike once again. 

There is a strong consensus that the Fed will raise by just 25bps as it approaches its terminal rate. USD/JPY remains around 130.00, with an imminent breakout expected depending on Fed's action.

The ECB is expected to hike by 50bps, but there is a lot less certainty about the outcome of the meeting. The latest minutes showed that a large contingent of members were in favor of hiking by 75bps but ultimately voted for 50bps. Should the ECB meeting prove hawkish, EUR/USD might finally hit and break past $1.10. Otherwise, slide towards $1.08.

Eurozone's preliminary CPI will be published just a day before the policy meeting and is expected to show another strong retracement, although stickiness in the core reading is expected to remain. If so, some pricing in might be experienced ahead of the meeting.

The BOE is also expected to hike by 50bps, but the latest data provided mixed signals. Inflation remains high, but PPI has come down. Chances are for another split vote, with the vote count potentially having the bigger impact on the markets. With cable near a critical top, it will probably be a break out towards $1.27 or $1.22.

The Curious Case of US Jobs

After several high-profile announcements of job cuts over the last couple of months, the unemployment rate in the US remains at historic lows after a surprise drop by two decimals last time around. The consensus is that fewer jobs will be created at 190K, and the inflation rate will retrace a bit to 3.6%. Nasdaq eyes remain on 12250 on the one side and 11500 on the other.

PMIs to Take the Global Pulse

The week will start with releasing PMI figures from around the globe. 

Chinese NBS Manufacturing PMI is expected to improve but remain in contraction, while the private Caixin survey is expected to rebound back into expansion. 

European Manufacturing PMIs are expected to confirm the preliminary figures showing a substantial improvement but remain in contraction, with Germany as the worst performer. 

Meanwhile, the UK is expected to confirm the mixed results seen in the preliminary reading, with an improving manufacturing PMI offset by a worsening Services PMI.

Other events and earnings

Germany will report flash PMI on Monday, and Switzerland will publish its KOF indicator. Tuesday has Japan unemployment and US consumer confidence. Wednesday has UK Halifax house prices and US JOLTs job openings. Thursday includes the German trade balance. Friday sees Eurozone PPI figures. Earnings include ExxonMobil, Pfizer, Vodafone, McDonald's, BT, Meta, Thermo-Fisher, Glencore, Apple, Google, Amazon, and Cigna.