This has led to a bid on risk assets as market participants anticipate a slowdown in the pace of policy tightening by the US Federal Reserve (Fed). According to CME’s FedWatch Tool, based on Fed Fund futures contract prices, the market has all but priced in a 25 basis point hike for the next Fed meeting on February 1st, an action that lifts the Federal Funds target range to 4.50% – 4.75%.
In the markets, the main US equity indices fought their way to another week of positive gains (S&P 500 up 2.7%) amid positive US inflation numbers and the start of Q4 earnings on on Friday, focused mostly on banking shares. JPMorgan Chase & Co beat quarterly expectations, while Wells Fargo & Co fell short. Also of note in the equity space was the widely watched FAANG index, which posted a muscular week of gains. Amazon powered 14.0% higher, followed by Netflix with 5.47%.
Notable performers in the (major) currency market were EUR/USD, AUD/USD and GBP/USD, with 1.78%, 1.48% and 1.15%, respectively. Laggards in the week were USD/JPY, down 3.17% and USD/CAD, down 0.35%.
Liquidity is likely to be thinner than usual on Monday as not only is the economic calendar somewhat light, US banks will leave their doors closed in observance of Martin Luther King Jr. Day. However, Tuesday will undoubtedly offer a more demanding environment, starting with the year-on-year growth rate (GDP) for China for Q4 at 2:00 am GMT, followed by the Watch Count of the United Kingdom for December at 7:00 am GMT. and Germany’s ZEW Economic Sentiment Survey at 10:00 am GMT. US hours will see the latest Canadian inflation data at 1:30 pm GMT and the US New York Manufacturing Index. We also see earnings from Goldman Sachs and Morgan Stanley during pre-market hours.
Wednesday’s early hours will see a shift in focus to the Bank of Japan’s (BoJ) interest rate decision at 3:00 am GMT. The consensus going into the rate decision is that the central bank will maintain its ultra-low interest rate policy at -0.1%, although expectations are growing for a policy review this year. This is followed shortly by the widely anticipated UK annual inflation rate for December at 7:00 am GMT, expected to fall to 10.6% (median forecast), with the projected core annual inflation number which remains unchanged at 6.3%.
The Bank of England (BoE) will meet a day after the Fed meeting on February 2, with markets currently expecting the central bank to raise Bank Rate by 50 basis points, a move that raises the reference rate to 4.00%. Finally, Wednesday’s markets will also be drawn to US retail sales and Producer Price Index (PPI) data at 1:30 pm GMT.
Thursday welcomes Aussie jobs data for December at 12:30 am GMT, followed by US housing figures (December) at 1:30 pm GMT and the usual data of ‘ weekly on US initial jobless claims for the week ending January 13. Also of relevance on Thursday, Procter & Gamble (pre-market hours) and Netflix (post-market hours) release their latest quarterly earnings results.
Friday closes the week with a look at retail sales data from the UK for December and Canada for November at 7:00 am GMT and 1:30 pm GMT, respectively.