With central banks announcing interest rate decisions and the world's biggest releasing results, the next few days will be anything but dull.
Markets tempered their strong opening to the year, as investors braced for a week brimming with important economic and corporate releases.
Leading into this week and indeed the end of January, there has been a groundswell of optimism based on hopes that inflation has peaked and that central banks will therefore cut their cloth accordingly.
The latest inflation release in the US on Friday, the Federal Reserve’s preferred Personal Consumption Expenditures index, pointed to a rise of 4.4% year-on-year, down from 4.7% in November, and the slowest increase in over two years. At the same time, a slight slowdown in consumer spending for December also added grist to the mill that a Fed pivot is potentially not far away.
As such, the main indices have posted noticeable gains in the month to date, with the Dow Jones having added 2.5%, the benchmark S&P500 6% and the previously beleaguered and tech-heavy Nasdaq index off to a flying start and ahead by 11% so far.
This optimism will face several stern tests in a particularly busy week. Interest rate decisions are due from the ECB and the Bank of England as well as the Fed, where a 0.25% hike is all but priced in. For the US, the non-farm payrolls report on Friday is currently expected to show that 175,000 jobs were added in January, as compared to 223,000 the previous month.
While there have been any number of economic releases pointing to the desired economic slowdown Stateside, the jobs market seems to be the main area which is resisting a slowdown and the report therefore assumes added significance.
Alongside the slew of economic data, the reporting season continues apace, with updates from the likes of General Motors Co (NYSE:GM), Ford Motor Co (NYSE:F), Starbucks Corp (NASDAQ:SBUX), Pfizer Inc (NYSE:PFE) and McDonald's Corp (NYSE:MCD) providing further colour to the state of the economy on the ground. In addition, the initial strength of the Nasdaq will also come under scrutiny, with reports due from Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), Alphabet Inc Class A (NASDAQ:GOOGL) and Meta Platforms Inc Class A (NASDAQ:META).
Asian investors were rather more circumspect ahead of this week’s barrage of data, as Chinese markets reopened after the Lunar New Year holiday. Initial reports have suggested that the reopening has not resulted in a fresh wave of Covid infections as feared, with holiday travel within the country having surged over the last couple of weeks. PMI reports due tomorrow could give some early indication on the initial effects of the reopening, with positive hopes for both the service and manufacturing sector readings.
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Such caution also extended to the UK in early exchanges, with investors positioning for a turbulent few days. An interest rate hike of 0.5% is expected from the Bank of England at noon on Thursday, adding further pressure to an economy which is starting to buckle under subdued growth concerns. Even so, much of the economic data has been poor but better than feared, with the result that the domestic barometer which is the FTSE250 has added 5.8% in 2023 after the effective bear market of last year.
Gains of any note were few and far between in the FTSE100, with the miners and other Chinese related stocks taking an early bath. Even so, the premier index has also had a robust start to the year, with the index is ahead by 4% so far despite some more recent strength in sterling.
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