This week saw the market digesting a slew of big-name earnings at the same time as focusing firmly on what the Fed would do next week during the Fed’s blackout period. US stocks don’t want to second guess the Fed right now as STIR markets price in two rate cuts this year, but the Fed’s last dot plot communication in December was that there would be no rate cuts through all of 2023. Which source is right? The Fed or STIR markets? That question will be answered next week. The BoC hiked by 25 bps as expected and is probably now on pause, while Germany finally relented and sent tanks to help Ukraine in the ongoing conflict with Russia.
Other key events from the past week
- Microsoft earnings: Slowing growth, Jan 24: Microsoft reported it expects slowing revenue growth in its cloud-computing business. This, alongside earnings from 3M and Texas Instruments, raised some concerns about slowing US growth midweek. However, all eyes will be on the Fed for its take next week.
- Geopolitics wobble: German tanks, Jan 25: The German Government is to send Leopard 2 tanks to Ukraine and the US is to send 30 Abrams tanks. Investors should watch in case this escalates the Russian/Ukraine crisis and causes a risk-off move and a flight to the USD and the further selling of stocks.
- CAD: BoC hikes by 25bps, Jan 25: The BoC hiked rates by 25bps as expected on Wednesday and expects to pause rates now. Governor Macklem said the pause was conditional on the economy developing broadly in line with forecasts.
Key events for the coming week
- EUR: Inflation focus, Feb 1: Headline inflation is expected to fall to 8.7% from 2% y/y. Better than expected data since the start of the year has led to hopes the Eurozone could avoid a recession, but will inflation remain sticky?
- Microsoft gains? Is Microsoft primed for a seasonal boost despite recent earnings?
- USD: Interest Rate Decision, Feb 1: Soft or hard landing? What will the Fed signal now on Wednesday? Will it change its outlook to reflect more confidence over falling inflation or will it keep to its aggressive December messaging?