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.

No changes are expected from the Fed. Market bets on the first rate cut 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 for 2024. The Fed’s own projections forecast just three 25bp cuts this year so the 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.

In Brief: major data releases of the week

30 January 2024, Tuesday

– Eurozone GDP: Growth is expected at -0.1% in Q4 after a similar reading in the prior quarter. That means annualised GDP is around flat. The economy is clearly stagnating but has yet to print a technical recession like Germany. Softer data could cement early ECB rate cut bets.

31 January 2024, Wednesday

-Australia CPI: The quarterly figure is key and forecast to show a rise of 0.8% which means 4.3% y/y. The core figure is expected at 0.9% q/q and 4.3% y/y. These annual numbers are modestly below the RBA’s 4.5% projection. The manor is trading around the 200-day SMA at 0.6576. Resistance sits at 0.6641 and support below at 0.6524/5.

– Chinese PMI data: This data will be closely watched to gauge the health of the Chinese recovery. In December, the metrics from NBS and Caixin diverged, with a continued contraction in the former while the latter suggested modest growth Sentiment in China has been downbeat for most of this month with the slew of measures announced last year largely overlooked by investors. But the RRR cut announced last Wednesday likely lifted investor sentiment, with more expected.

-FOMC Meeting: Markets will focus on any signals around the timing and size of the pending rate cut cycle. Recent jobs and activity data has been better than expected. But the disinflation trend is set to continue with policy highly restrictive. The chance of a March rate cut is currently around a coin toss.

01 February 2024, Thursday

–Eurozone CPI: Expectations are for the headline to rise two-tenths to 3.1% and the core to fall two-tenths to 3.2%. Energy base effects will battle with lower food and goods prices. EUR/USD has found support from its 200-day SMA at 1.0842. Resistance sits just above 1.09.

–Bank of England Meeting: The MPC is expected to remain cautious, even though wages and services inflation are way below their most recent forecasts. A unanimous vote is anticipated as the hawks’ side with the majority. “Keeping rates restrictive for an extended period” seems likely. 

–US ISM Manufacturing: Consensus sees a print of 47.3, just off the 47.4 print in January. The recent PMI manufacturing figure rose above 50 to a fresh 15-month high. Resilient growth and cooling inflation is expected in the coming months.

02 February 2024, Friday

–US Non-Farm Payrolls: Analysts expect a headline print of 168k, down from the prior 216k. The jobless rate is forecast to tick up one-tenth to 3.8% and average hourly earnings tick down to 0.3% and remain unchanged at 4.1% y/y.