It’s a huge week for financial markets as investor get to hear from two major central banks, while top tier data like China PMIs, eurozone inflation and US non-farm payrolls figures are released. The US earnings season also continues with five of the “Magnificent Seven” megacap tech giants reporting their latest fourth quarter results across the week.
Market bets on the first rate cut by the FOMC have been scaled back sharply since the start of the year. Policy easing was seen as too aggressive after Chair Powell’s supposed pivot at the December Fed meeting with around seven 25bp rate cuts priced in for this year, with the first move nailed on for March. But since then, data has generally been solid with both activity and labour market figures beating expectations. On the flip side, business surveys point to downside risks to growth while consumers are expected to come under pressure through the new year. Importantly, the Fed’s favoured inflation gauge has now been running around the Fed’s 2% target for two straight quarters.
The odds of a March rate cut have now shifted to roughly a 50:50 bet, with five 25bp moves fully priced. The Fed’s own projections forecast just three 25bp cuts this year so the FOMC statement language and Chair Powell’s tone will be critical. The dollar printed a doji candle this week, denoting indecision, and traders will also have to contend with the monthly non-farm payrolls report next Friday. A solid set of data is expected as the greenback continues to battle with its 200-day simple moving average. The Dollar Index has tracked sideways recently, so a strong range breakout is expected soon.
The Bank of England’s relatively hawkish stance has so far underpinned support for the pound over the past couple of months. But the disinflation trend is expected to pick up quite sharply through 2024, putting pressure on policymakers to begin easing policy. That said, business survey data remains strong, and earnings growth is still elevated. Markets currently see a high chance of rate cuts starting in June, with less than 100bps of easing for the rest of the year. Cable is trapped in a range between 1.26 and 1.2828.
Earnings from Microsoft, Alphabet, Apple, Amazon, and Meta will grab the headlines, as their stocks continue to push indices to fresh all-time highs by the day. Cloud services at the world’s biggest company by market cap, Microsoft, plus those at Amazon and Alphabet will be analysed to see if recent stellar trend growth can continue. Advertising growth will be the focus for Meta and Alphabet watchers, while Apple is likely to have to prove it can still hit premium growth numbers. To say stock markets are relying on these five companies to keep the record run going is probably not an exaggeration. Tesla’s disappointing growth warning this week and subsequent 12% plunge has put bulls on notice.
Here are the main risk events of the week:
