Will the Fed and five major quarterly results this week ruin the market tea party in the wake of yet another week of records on Wall Street, in Europe, and Japan?
And will the underperforming Australia join the party after this week’s data drop here?
Australian inflation, US Fed decision, and then the jobs data for January and the quintet of results from some of the largest companies in the world – all of whom are worth a trillion US dollars or more.
In Australia, there’s some early December data at the end of the week, but Wednesday sees the release of the Consumer Price Index for the December quarter, and the Monthly CPI indicator for the month of December.
Economists reckon the CPI could come in around 4.3% (7.8% at the end of 2022) are expected for the CPI, even less for the monthly indicator, perhaps 3.6% (8.4% in December 2022).
So a big deal – there’s also retail sales for December tomorrow – will November’s surge reverse, as it did in 2022?
There’s also house price data for January on Thursday, building approvals for December the same day, and private credit data from the Reserve Bank the day before. Friday sees lending finance data for December and 2023 as well.
Export prices and the terms of trade will be out Thursday, and Friday sees producer prices for the December quarter.
Some important quarterly reports – none more so than struggling Perth-based lithium and nickel group, IGO (Wednesday).
Atlassian is due to release its quarterly figures this week as well.
More good economic news and more records on Wall Street last week and in Japan – even Europe’s key index hit a two-year high last week.
And after the very good economic data last week on US growth and inflation, there’s more tests ahead with the Fed meeting and statement and the media conference by chair, Jay Powell, plus US jobs and wages data for January on Friday.
More and more investors are now reassessing their earlier expectations for rate cuts this year following the strong economic data and statements from Fed officials who suggested markets should not be expecting aggressive rate cuts. Investors have pushed expectations for the Fed’s first cut of the cycle to May, from March. Markets are now pricing 135 basis points in cuts by the end of the year, down from over 160 basis points expected in December.
Markets will also be looking for some sign of what the Fed is planning for its quantitative tightening program (allowing all those bonds on its balance to run off each month), which has contributed to monetary policy tightening by sapping liquidity in the Treasury market.
Investors will also watch for word from the Treasury Department over its estimates for future funding and auction sizes, which will come on Monday and Wednesday. Concerns over Treasury supply due to deficit spending have helped keep bond yields buoyant. There’s also important data on US employment costs and productivity to be issued this week.
There’s some big earnings release from five of the so-called “Magnificent Seven stocks,’ led by Apple.
Collectively, the market value of Alphabet, Microsoft, Apple, Amazon, and Meta account for nearly 25% of the S&P 500, giving them an outsized influence on the performance of the broader index. While most of the group has continued to rise in 2024, shares of electric carmaker Tesla are down more than 26% year-to-date, leaving it among the worst performers in the S&P 500 for the year so far.
But the 7th Mag Seven, chipmaker Nvidia, has ridden renewed momentum over artificial intelligence to a nearly 23% gain this year.
“There’s not this monolithic performance among those stocks anymore,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “If there is a downside to earnings … that could take the bloom off the rose” for the market as a whole.
This week sees 106 S&P 500 companies (including six Dow 30 components) scheduled to report results for the fourth quarter.
In Europe, the Bank of England is expected to hold its policy interest rate at 5.25% at Thursday’s meeting.
And first estimates of fourth-quarter GDP for the euro zone this week ahead mean a heavy one for new data. Moody’s economists think the euro zone economy grew in the fourth quarter though at a muted pace of just 0.2% quarter over quarter. This will come after a 0.1% contraction in the third quarter, making for a yearly growth rate of 0.6% for the whole of 2023.
Moody’s says that among the four major economies, “we expect to see Spain continue to outperform, with 0.2% growth. France’s GDP, meanwhile, likely stalled in the quarter, while Italy’s fell 0.1%, and Germany’s was down 0.3% (already announced).
In Asia, besides the release of the activity surveys on Wednesday and Thursday – both are forecast to be weak to subdued, with the official government survey (which looks at big companies) again showing a contraction (a reading less than 50).
GDP numbers from Hong Kong, Taiwan, and The Philippines are expected this week.