Risk events pick up next week with major central bank meetings all expected to stand pat on policy changes. But what officials have been saying and what markets are expecting still diverge, which means one side will have to give ground soon. Nowhere is that more obvious than in the US where resilient recent data in the labour market and retail sales highlight the fact that rate cuts may not be needed for some time. In contrast, money markets are still hoping for a March Fed rate cut, though the odds are now nearing a coin toss from above 80% only a week or so ago.
Investor will eye the US GDP data on Thursday which is likely to remain respectable and further reduce the pressure on the FOMC to start policy easing. Consumer spending, which accounts for over two thirds of GDP, is expected to have continued to increase at a solid pace. In fact, there seems to be more chance of an upside surprise than a disappointment as the Atlanta Fed GDPNow model estimates growth at 2.4%, which is much higher than the official forecast. Core PCE data released on Friday is the most important inflation measure for monetary policy and should come in below 0.2% for the sixth month out of the past seven, potentially cementing the “soft landing” theme.
ECB officials were out in force last week pushing back on early rate cuts and stressing that the Governing Council would prefer to wait for the results of wage negotiations before reducing policy rates. The region remains in stagnation mode, with neither a full-blown recession nor positive growth on the horizon. But it will most likely be too early to declare victory on inflation with the bank stressing its data dependence at the Thursday meeting.
The Bank of Japan is again set to keep its ultra-accommodative stance with the policy setting of negative rates at -0.10%. Officials reiterated their dovish forward guidance in December and market expectations of an early exit from current settings have faded. Any downward changes to the bank’s inflation projections in the outlook report will be seized upon by investors. But expectations for policy normalisation are likely to ramp up into the Spring when wage negotiations begin.
Stock markets Stateside made fresh record highs today as the tech rally pushed the major indices higher. Fourth quarter earnings breadth picks up next week with 75 S&P 500 firms releasing across multiple sectors. Tesla will no doubt grab the headlines as its shares struggle this year compared to the other tech giants involved more directly in Artificial Intelligence. Competition from rival electric vehicle makers, especially in China, is a headwind with BYD recently overtaking the Elon Musk-led company in vehicles sold in the final quarter of 2023. Major support sits around $200 on the Tesla chart and is the midpoint of last year’s rally.
Here are the key events to watch out for:
