It’s a big week for markets as we get three major central bank decisions. 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 in a slightly different spot to the other two central banks. Although it shares the same tight job market issues with the US, its elevated inflation matters are 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. GBP/USD has held up relatively well in recent weeks but is struggling to break the mid-1.24s.

Major risk events of the week

31 January 2023, Tuesday:

-US Consumer Confidence: The Conference Board said its index increased to 108.3 in December, the highest reading since April. But fears of a recession persist and may result in fewer households planning to make big-ticket purchases over the next six months. Analysts say the outlook hinges on the Fed’s ability to deliver a soft landing.

01 February 2023, Wednesday:

-Eurozone CPI: Falling energy prices are expected to continue leading the drop in headline inflation. But key components of core inflation accelerated in the last figures. Analysts say the delayed pass through of high production costs and still-strong labour market may sustain the core data.

-ISM Manufacturing: Consensus forecasts a drop to 48.2 from 48.4 in December. This would be the third straight fall and the lowest print since May 2020. Manufacturing remains in a fragile state with the other main survey, the S&P, broadly copying the ISM. 

-FOMC Meeting: Money markets have locked in a 25bp rate hike taking the target range to 4.5% – 4.75%. Inflation and recent activity data are slowing. But financial conditions have loosened, fuelling talk that policymakers may push against policy easing priced in to the second half of the year.

02 February 2023, Thursday:

-Bank of England Meeting: Markets have more or less priced in a second consecutive 50bp rate rise. This would take the Bank Rate to 4% with the MPC currently forecasting a peak at 4.4%. Fresh new inflation forecasts could indicate if we are close to the top in rates. But recent services CPI came in above expectations. Do the MPC keep their options open for more rate hikes in the coming months? Or is the bank’s work nearly done?

-ECB Meeting: Analysts look for a 50bps hike in the deposit rate to 2.5%. ECB officials have been consistent in their messaging that they have more work to do to combat elevated core inflation. Guidance on what happens after this meeting is key, with President Lagarde expected to be relatively hawkish. How far and fast the ECB go with rates is still uncertain.

03 February 2023, Friday:

-US Non-Farm Payrolls: The headline is expected to slow to 175k after a gain of 223k in December. This would be the lowest print since December 2020. The unemployment rate is forecast to tick up one-tenth to 3.7%. That is likely to support average hourly earnings at 0.3%. Softer wage growth is critical to the FOMC pivot.