Week Ahead: Central Bank Meetings, Tech Earnings and NFP

29/01/2023

It’s a huge week for markets as we get three major central bank decisions within the space of 20 hours. The data calendar is also packed with key top tier economic reports which will generate potential high volatility as well. These include the US monthly nonfarm payrolls and ISM, eurozone inflation and GDP. Plus several megacap tech titan companies report Q4 results like Meta, Apple, Amazon and Alphabet, Google’s parent.

Notably, the central bank interest rate decisions are already priced in by markets with a 25bp rate hike by the Fed on Wednesday and 50bps moves by the ECB and Bank of England the following day. So rather than the actual hikes, the real uncertainty lies with their accompanying communications. The FOMC message could be quite strongly influenced by some of that critical data before the meeting. In turn, it could look dated by the end of the week with the US jobs and ISM Services data finishing off the week.

Falling inflation and signs of a weakening economy have increased the chances of smaller hikes going forward at the FOMC. The inflation peak appears to now be behind us, but the labour market remains strong and tight. That could mean wage pressures flare up in the coming months which policymakers will be highly wary of. In turn, they may want to push back on the rate cuts priced in by markets for the end of this year. The dollar should find a bid in this scenario and stocks pare their recent healthy year-to-date gains.

The ECB is expected to remain hawkish with core inflation still very elevated and sticky. With rate expectations beyond mid-2024 nearly as low as before the December meeting, President Lagarde is seen talking up rates. Another 50bp rate hike at its next meeting in March could then get sealed which may see the euro print new cycle highs.

The Bank of England is seen delivering a "dovish hike" with the economy threatening to rollover. It shares the same tight job market issues with the US, but its elevated inflation is more like the eurozone. Updated forecasts from the MPC should show a milder recession but lower inflation. Guidance is likely to then be quite soft with the vote split leaning increasingly to the dovish side. 

Here are the key events in the week: