Weekly Market Outlook (January 27–31)
This week’s focus is on central banks as the BoC, the FOMC, and the ECB announce their policy decisions.
Upcoming Events:
- Monday: Chinese PMIs, German IFO index.
- Tuesday: US durable goods orders, US consumer confidence.
- Wednesday: Australian Q4 CPI, BoC monetary policy decision, FOMC monetary policy decision.
- Thursday: Eurozone GDP and unemployment rate, ECB monetary policy decision, US Q4 GDP, US initial jobless claims.
- Friday: Tokyo CPI, Japan unemployment rate, Japan industrial production and retail sales, Swiss retail sales, French CPI, German CPI, Canadian GDP, US core PCE, US Q4 ECI.
Tuesday
US consumer confidence is expected to reach 106.0 (up from 104.7). Last month, the index fell to 104.7 (compared to 112.8 in November).
Dana M. Peterson, Chief Economist at The Conference Board, commented:
“The recent recovery in consumer confidence did not hold in December, as the index fell back to the middle of the range that has prevailed over the past two years.”
“While weaker consumer assessments of both current conditions and expectations contributed to the decline, the expectations component saw the steepest drop. Consumers’ views on the labor market continued to improve, consistent with recent jobs and unemployment data, but their outlook on business conditions worsened.”
This decline might just be an outlier amidst generally positive economic data. Overall, the index remains within its two-year range, with no significant catalyst to suggest an abrupt economic slowdown.
Wednesday
Australia’s Q4 CPI is expected to come in at 2.5% (down from 2.8%), with a quarterly figure of 0.3% (up from 0.2%). The Reserve Bank of Australia (RBA) focuses on core inflation, with trimmed mean CPI for Q4 projected at 3.3% (compared to 3.5%), and the quarterly figure at 0.6% (down from 0.8%).
The RBA has softened its stance in recent meetings, with markets pricing in a 54% probability of a 25-basis-point rate cut in February, while fully pricing in a cut by April.
Australia’s recent employment report was slightly weaker than expected but did not significantly alter market expectations. Instead, attention has shifted to the monthly CPI report, which showed core inflation declining, with trimmed mean CPI at 3.2% year-on-year.
If Q4 CPI disappoints, markets may price in a February rate cut. Stronger-than-expected data, however, could introduce uncertainty and shift expectations to April.
The Bank of Canada (BoC) is expected to cut rates by 25 basis points, lowering the policy rate to 3.00%. At the last meeting, the BoC reduced rates by 50 basis points but removed forward guidance, signaling a slower pace of easing moving forward.
Canada’s recent employment report exceeded expectations, and CPI data largely matched forecasts, indicating that the BoC’s measures to rein in inflation are yielding results.
Despite these domestic improvements, external risks like potential tariffs from the US remain a concern. President Trump has threatened to impose 25% tariffs on Canadian imports starting February 1, which could impact the Canadian economy.
The Canadian dollar has shown limited reaction to economic data, staying within a 150-pip range against the US dollar, largely driven by external headlines and Trump’s trade policies.
The Federal Reserve (Fed) is expected to leave rates unchanged at 4.25–4.50%. In December, the Fed cut rates by 25 basis points while upgrading growth and inflation forecasts and reducing the projected rate cuts for 2025.
Fed officials are expected to emphasize the need for more data before taking further action. Chairman Waller recently noted that the pace of rate cuts will depend on inflation trends, leaving open the possibility of a March cut.
Recent US inflation data came in weaker than expected, calming market fears and leading to a repricing of expectations for rate cuts. Markets are now pricing in almost two rate cuts by year-end, aligning with the Fed’s latest projections.
This week’s decision is unlikely to surprise markets, with Q1 data remaining the key focus. However, a slightly dovish tone could weigh on the US dollar unless geopolitical risks shift the narrative.
Thursday
The European Central Bank (ECB) is expected to cut rates by 25 basis points, lowering the policy rate to 2.75%. Core inflation in the Eurozone remains sticky, particularly in the services sector.
Despite pessimistic forecasts, recent flash PMIs have shown a notable recovery in economic activity, which could accelerate if the Russia-Ukraine conflict stabilizes further.
Additionally, the EU is pushing initiatives in AI, advanced research, and clean technologies to compete with the US and China, signaling brighter prospects for 2025. Combined with increased investment and deregulation efforts, the outlook for the euro and European equities appears increasingly optimistic.
The ECB’s decision will likely reinforce market optimism, although its immediate impact on the euro remains uncertain.
The US initial jobless claims remain a key weekly indicator of labor market health. Initial claims have stayed within the 200,000–260,000 range since 2022, while continuing claims hover near cycle highs.
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