It’s a super-busy week of data, central bank meetings, earnings and rising geopolitical risk between Russia and Ukraine. After the selloff seen in equity markets in 2022, this cocktail of events could determine if the contagion spreads to all areas of the broader market and currencies.

The market is already pricing in four Fed hikes of 25bps this year, with a good chance that we see more than two in the first half of 2022, or alternatively 50bp hike. Notably, bond yields have moved north with stable to lower inflation expectations, resulting in a sharp move higher in real rates. This has been the key driver of souring risk appetite and will determine market direction going forward, in what is becoming quite an aggressive path for Fed action.

Last year’s high-flying tech companies start reporting their results in the next fortnight. This includes Microsoft on Tuesday, Tesla the following day and Apple on Thursday, all after the US markets close, while Amazon and Facebook release earnings next week. Overall, constituents of the S&P500 are forecast to post y/y earnings growth of roughly 23% for the fourth quarter. But just over 10% had reported last week, leaving room for downward revisions.

The Nasdaq’s drop into correction territory last week has been caused by investors pulling out of highly valued and fast-growing companies amid rising rates. “BTD” and “TINA” (There Is No Alternative (to stocks)) are being challenged.  The Fed’s new hawkish tilt could be tested if markets go into full-blown selloff mode.

Major risk events of the week

24 January 2022, Monday:

–Eurozone and US PMIs: These have been on a declining trend recently as Covid restrictions, rising inflation and volatile energy prices (in Europe) manifest themselves into the economy and activity levels. PMIs are above the 50 mark but a loss of momentum could signal slower growth and a possible easing of price pressures ahead.

–Italy’s Presidential Election: There is a clear risk of political uncertainty returning to the country over the longevity of Italy’s unity government if current Prime Minister Mario Draghi is elected as President.

26 January 2022, Wednesday:

-Bank of Canada meeting: Markets are pricing in more than a 70% chance of a 25bp rate hike. Inflation is at 30-year highs and the economy is at record employment, while Covid restrictions are set to ease at the end of the month. With some analysts predicting as many as five rate increases this year, CAD should continue to outperform, especially against central banks in no rush to tighten policy.

– FOMC meeting: Markets are looking for policy tightening signals which may include the immediate wind-up of the Fed’s QE program. This would be brought forward from the current mid-March end point. A March rate hike looks a certainty with quantitative tightening starting in September. Policymakers may note some caution on near-term activity due to Omicron, but a swift rebound is expected.

27 January 2022, Thursday:

–US GDP: Economists forecast fourth quarter annualised growth at 5.8% from the prior-Delta affected 2.3%. Softer December activity data has seen expectations reduced, though the Omicron hit should be concentrated in the first quarter of this year.

28 January 2022, Friday:

–France and German GDP: French growth is forecast to rise less than in the prior quarter due to waning reopening effects, though activity remained healthy. The surge in Covid cases in Germany may see a fall in its growth.

–US Core PCE: The Fed’s preferred measure of inflation is expected at 0.5%, close to its highest level since the 1980s. Most analysts see prices moving lower through the year as purchasing power and demand are eroded by rising prices. Peak stay-at-home and stimulus effects should ease further.