The AUD is the strongest and the EUR is the weakest as the North American session begins. The USD is lower to start the trading week.
The economic calendar is full of key events and releases this week highlighted by central bank decisions including the US FOMC (2 PM On Wednesday) and UK Bank of England (on Thursday at 7 AM ET). Although both are expected to keep rates unchanged, the markets will be focused on any clues to the policy going forward. On Friday, the US jobs report will be released with expectations of 216K - higher than the 177K last month.
Over the weekend WSJ Timiraos argued that the rise in real rates is the new risk for the Fed and could lead to the Fed cutting sooner rather than later. However, he also pointed out how the economy is doing ok despite the higher rates.
Some highlights from the article includes:
Inflation Decline: Inflation has fallen much faster than expected, with prices excluding food and energy rising at a 1.9% annualized rate between July and December, down from 4% in the previous six months.
Economic Activity Concerns: Despite robust growth, there's a concern that real interest rates (nominal rates adjusted for inflation) have become too restrictive, potentially hampering economic activity. Lowering rates could alleviate this restriction.
Adjusting to Lower Inflation: The fall in inflation boosts purchasing power and could sustain consumer spending and confidence. This suggests that lower inflation, rather than stifling growth, may actually strengthen it.
Neutral Rate Considerations: The economy might tolerate higher rates than previously believed. Most officials thought the neutral rate was 2.5%, below the current rate of 5.25% to 5.5%. However, the economy has not shown signs of significant distress at these levels, suggesting rates could be more restrictive than necessary.
Risks of Delay: Waiting too long to cut rates could necessitate more aggressive cuts later, especially if the economy shows signs of entering a recession. Early action might prevent the need for drastic measures.
Impact of Quantitative Tightening: The Fed is reducing its $7.7 trillion asset portfolio more rapidly than in previous cycles, a process known as "quantitative tightening" (QT), which could compound the restrictive effects of high rates.
Labor Market Concerns: The labor market shows signs of strain, with the hiring rate dropping to its lowest level in 10 years. Delaying rate cuts could exacerbate labor market issues, potentially leading to more significant downturns.
Policy Credibility vs. Economic Health: While there's a risk that cutting rates and then raising them again could harm the Fed's credibility, the greater risk might be the economic and labor market damage caused by waiting too long to adjust policy.
Today the calendar is light but things kick off tomorrow. Below are the key releases on the global economic calendar.
Tuesday, January 30
USD
- CB Consumer Confidence: Previous 110.7, Forecast 113.9
- JOLTS Job Openings: Previous 8.79M, Forecast 8.73M
AUD
- 7:30pm: CPI q/q: Previous 1.2%, Forecast 0.8%
- CPI y/y: Previous 4.3%, Forecast 3.7%
- Trimmed Mean CPI q/q: Previous 1.2%, Forecast 0.9%
CNY
- 8:30pm: Manufacturing PMI: Previous 49.0, Forecast 49.2
Wednesday, January 31
EUR
- All Day: German Prelim CPI m/m: Previous 0.1%, Forecast 0.1%
USD
- 8:15am: ADP Non-Farm Employment Change: Previous 164K, Forecast 143K
- 8:30am: Employment Cost Index q/q: Previous 1.1%, Forecast 1.0%
CAD
- 8:30am: GDP m/m: Previous 0.0%, Forecast 0.1%
USD
- 2:00pm: Federal Funds Rate: Previous 5.50%, Forecast 5.50%
- FOMC Statement
- 2:30pm: FOMC Press Conference
Thursday, February 1
GBP
- 7:00am:
- BOE Monetary Policy Report
- Monetary Policy Summary
- MPC Official Bank Rate Votes: Previous 3-0-6, Forecast 2-0-7
- Official Bank Rate: Previous 5.25%, Forecast 5.25%
USD
- 8:30am: Unemployment Claims: Previous 214K, Forecast 211K
- 10:00am: ISM Manufacturing PMI: Previous 47.4, Forecast 47.0
Friday, February 2
USD
- 8:30am:
- Average Hourly Earnings m/m: Previous 0.4%, Forecast 0.3%
- Non-Farm Employment Change: Previous 216K, Forecast 177K
- Unemployment Rate: Previous 3.7%, Forecast 3.8%
- 10:00am: Revised UoM Consumer Sentiment: Previous 78.8, Forecast 78.8
In addition to the economic calendar, the earnings calendar is also chock-a-block in the US. This week the most releases (of any week) for the quarter are scheduled. The following are the highlighted earnings:
Monday
After Close:
- Nucor (NUE)
- Whirlpool (WHR)
Tuesday
Before Open:
- Pfizer (PFE)
- General Motors (GM)
- UPS
- JetBlue (JBLU)
- Corning (GLW)
After Close:
- Microsoft (MSFT)
- AMD
- Alphabet (GOOGL)
- Starbucks (SBUX)
- Juniper Networks (JNPR)
Wednesday
Before Open:
- Boeing
- Phillips 66 (PSX)
- Mastercard (MA)
- Boston Scientific
After Close:
- Qualcomm (QCOM)
- Altria
Thursday
Before Open:
- Altria
- Royal Caribbean Group
- Peleton
- Merck (MRK)
- Honeywell (HON)
After Close:
- Apple
- Amazon (AMZN)
- Meta Platforms (META)
Friday
- Before Open:
- Exxon Mobil (XOM)
- Chevron (CVX)
- Bristol Myers Squibb (BMY)
- Cigna (CI)
A snapshot of the markets as the North American session begins currently shows:
- Crude oil is trading down $0.15 or -0.18% at $77.86. Last week the price of crude oil soared by 6.50%
- Gold is trading up and dollars and $0.99 or 0.54% at $2028.97. Gold prices last week dipped by -0.57%
- Silver is trading up 25.7 cents or 1.13% at $23.03. Last week the index rose by 0.74%.
- Bitcoin traded at $42,047. Over the weekend the high price reached $42,824. The low price reached $41,396.
In the premarket for US stocks, the major indices are mixed. On Friday, the S&P and NASDAQ snapped their winning streaks at six days. Today:
- Dow Industrial Average futures are implying a decline of -24 point. Last week the Dow Industrial Average rose 0.65%.
- S&P futures are implying a gain 1.28 points. Last week the index rose 1.06%
- Nasdaq futures are implying a gain of 27.74 points. Last week the index rose 0.94%
In the European equity markets, the major indices are trading lower:
- German DAX, -0.54%. Last week the index rose 2.45%
- France CAC -0.10%. Last week the index rose 2.56%
- UK FTSE 100 +0.12%. Last week the index rose 2.32%
- Spain's Ibex -0.71%. Lastly the index rose 0.79%
- Italy's FTSE MIB -0.87% (delayed by 10 minutes).
Shares in the Asian Pacific markets were mixed:
- Japan's Nikkei 225, 0.77%. The index fell -0.59% last week
- China's Shanghai composite index , -0.92%. Last week the index rose by 2.75%
- Hong Kong's Hang Seng index, +0.70%. Last week the index rose by 4.20%
- Australia S&P/ASX, +0.30%. Last week the index rose by 1.80%
Looking at the US debt market, yields are trading lower to start the trading with
- 2-year yield 4.336% -2.8 basis points.
- 5-year yield 4.010% -5.1 basis points.
- 10-year yield 4.106% -5.3 basis points.
- 30-year yield 4.342% -4.7 basis points.
- The 2-10 year spread is at -22.9 basis points. At this time yesterday, the spread was at - -21.1 basis points
- The 2-30 year spread is at +1.0 basis points. At this time yesterday, the spread was at +2.8 basis points.
In the European debt market, the yields are starting the week lower in the benchmark 10 year notes:
