Week Ahead: Markets to digest data and rate cut bets

After a volatile week of central bank meetings and top tier economic data, the risk calendar looks relatively light in comparison. The pushback of early rate cuts by policymakers continued last week, but interest rates still traded lower. Pressure on US regional banks was a factor and one area to watch going forward, while markets are still convinced that rates will come lower through the year, so the trend is strong. Indeed, one investment bank has switched the “higher for longer” interest rate moniker to “later and faster”, as policymakers realise they are at a key turning point so would like more data before eventually commencing the rate cut cycle.

Friday’s blockbuster non-farm payrolls data really sealed the deal on any notion of early rate cuts. Another massive headline print and revisions, plus unbelievably strong wage growth means the Fed can take its time, though the monthly jobs report does contradict evidence elsewhere of a slowing labour market. Watch out for lots of Fedspeak this week to direct markets and the dollar, which enjoyed a fifth straight week of gains and threatens to break decisively to the upside.

The RBA meet on Tuesday and is fully expected to stand pat with no prospect of any changes. Money markets price in just under a 50% chance of a rate cut by May. This has been helped by softening inflation data even though monthly prints remain high. Governor Bullock may use this first meeting of the year to gently push back against any premature policy easing, in tune with other major central banks. The aussie looks to be breaking down after a whippy few days. A pivot point sits around the 200-day simple moving average and the midpoint of the November rally around 0.6570.

Earnings from the tech titans have generally just about lived up to analysts’ very lofty expectations, though there have been notable exceptions like Tesla and Alphabet.  The Meta dividend has shown that Big Tech is finally tackling its $500 billion cash pile, in what some are calling a “coming of age” and an indication of a maturing corporate culture in Silicon Valley. The social media giant has joined Apple and Microsoft in offering a payout to placate investors worried about the huge research and development spending in artificial intelligence. Tech companies would traditionally avoid paying to shareholders as they preferred to reinvest in new growth initiatives and protect against disruptive sector changes. Fresh highs will be eyed this week in the major US stock indices, driven once more by a handful of the world’s biggest (tech) companies.

In Brief: major data releases of the week

05 February 2024, Monday

-US ISM Services: Expectations are for a pick up to 52.2 from 50.5 in December. A print above 50 denotes growth. Focus will be on the employment gauge after a plunge in January to the lowest level since July 2020. The prices measure will also be monitored.

06 February 2024, Tuesday

– RBA Meeting: Consensus expects the RBA to leave the cash rate unchanged at 4.35%. Inflation has been printing lower than the bank’s forecast, though this is mainly driven by base effects. Domestic demand has been softer than anticipated.

08 February 2024, Thursday

–China CPI: Inflation is forecast to stay in negative territory, falling two-tenths to -0.5%, impacted by the Lunar New Year. Excess capacity is putting pressure on upstream prices. Consumer demand remains weak.

09 February 2024, Friday

–Canada jobs: Jobs gains of 15k are predicted after just a net 100 in December. The unemployment rate is seen ticking one-tenth higher to 5.9%, continuing its upward trend. The BoC will be watching average hourly wages which previously increased at the fastest pace in three years.

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.