• Central banks make cameos in earnest
  • Data reads a familiar story in the US 
  • Reporting season speeds up 

An eventful week for central banks

While Martin Luther King Day (Jan 20) and Chinese New Year (Jan 24 - Jan 30) make for a compressed week, traders won't have any trouble finding liquidity given plenty of event risk lies scattered in the calendar ahead.

A trio of G10 central bank decisions - from BoJ, BoC and ECB - and the release of European PMI and Aussie employment data, puts markets on standby as the first indication of central bank trajectory gets released this year. 

All three are expected to remain on hold, so clues on how each might break 2019's considerable cycle of easing will prove more significant for markets.

Here we look at market pricing for a rate cut and what investors will be focussed on. 
BoJ: Implied prob. of rate cut (17%); Leveraged money has turned shorter as USDJPY pushed 110
BoC: Implied prob. of rate cut (5%); Strong BoC Business Outlook survey creates little risk here
ECB: Implied prob. of rate cut (25%); Strategic Review announcement the main drawcard
BoE: Implied prob. of rate cut (65%); UK PMI carries heavy weight for BoE's meeting on Jan 30
RBA: Implied prob. of rate cut (42%); How Aussie jobs print likely tilts a split RBA 
RBNZ: Implied prob. of rate cut (7%); Inflation to push above RBNZ's 1.6% Q4 forecast
Fed: Implied prob. of rate cut (16%); Recent US data increasingly firms Fed's on hold stance

US performance getting hard to beat

FX volatility sustains at subdued levels in part thanks to US data that has perpetually highlighted the attractiveness of the US economy relative to the world.

Improved housing starts (+16.9% m/m), modest industrial production (-0.3% m/m), in-line retail sales (+0.3% m/m) and an optimistic Fed Philly Index (+17) last week all contributed to the argument that US growth is here to stay. Mix that in with the ceremonious signing of US-China Phase One, and all of a sudden it won't strike many as surprising that the US Dollar Index sustains above 97.6 despite pervasive risk-on flows.

Nudging along this week, Fed blackout and limited US data ushers focus on non-US figures. If majorly important PMIs and Aussie employment can show some solidarity, this perhaps helps pare USD strength. Although, how Davos - titled "Stakeholders for a cohesive and sustainable world - shapes up to be, is a wildcard.

Reporting season kicks on with interest as equities sit at all-time highs

Equities demand immediate focus with large cap reporting in full flight and global risk sentiment pulling benchmarks to all-time highs. ASX above 7k and S&P 500 near 3,325 begs the question of how long this rally can last, and whether we see it upended in the near-term.

Valuations and economic fundamentals continue a path of divergence, but risk sentiment led by cheap money, Fed liquidity and FOMO risk chasing has pretty much drowned that out. While visibility is low on when the party stops and patrons might head for the exit door, it'd be remiss of us not to be cognisant of the excessive environment we're in and to plan ahead.

Over the next couple of days, reporting season intensifies. If we can avoid crisis here in terms of earnings revisions and re-ratings, sprinkled with okay 12-month outlooks and signs of optimism, then permanent bears will have to wait a little while longer for a correction.

On our reporting radar, Netflix (NFLX), Johnson & Johnson (JNJ), Costco (COST), American Express (AXP), UBS (UBSG), Samsung (005930), Tiffany & Co (TIF) and Santos (STO) appear interesting.