- Central Banks: RBA, BoE and ECB
- Earnings: GOOGL, AMZN and FB
- Data: Eurozone GDP and CPI, and US NFP
Following the previous week’s big drop in US stock markets, we saw some very volatile price action as dip buyers initially took advantage of downbeat stock prices, before being overpowered by the bears once again. As we got closer to the end of the week, the major indices were holding deep in the negative territory. Even strong earnings result from Apple couldn’t help to lift sentiment, as inflation and tightening concerns exacerbated by surging oil prices and a hawkish Federal Reserve. Investors are starting to look ahead to the first week of February, when the economic calendar is filled with top-tier macro data, including US nonfarm payrolls, a couple of central bank meetings – namely the ECB and BoE – and plenty more US earnings, featuring the likes of Alphabet, Amazon and Meta. A week-long spring festival in China means the markets will be closed there.
Tech stocks to remain in focus
Source: ThinkMarkets and TradingView.com
The focus will clearly remain on the stock market, especially the still-expensive technology sector. Powell has already admitted the Fed has been behind the curve and now must get its act together to get inflation to more acceptable levels. If that means upsetting financial markets, then so be it. So, expect to see further volatility for technology stocks in the week ahead, if incoming data points to a sustained period of high inflation and/or stronger growth. If we assume that stimulus and low rates were among the major reasons behind the protracted bull run, then that support is no longer there or at least not in the same way. Value stocks – those in the financial sector and industrials – must now do the heavy lifting. But if those big tech stocks continue to struggle – and we have plenty more earnings to come in the week ahead from the tech sector – then it is hard to imagine the S&P 500 remaining at current levels for too long. The correction could extend further, and we might be in for more volatile price action in February.
Busy week for FX traders
As far as the US dollar is concerned, well it is likely to remain supported against commodity currencies for as long as risk sentiment remains sour. There is an outside chance that the Japanese yen might come back strongly if the stock market turmoil continues, amid haven demand. In the week ahead, we will get policy updates from the likes of RBA, BoE and ECB. We will also have the latest monthly employment reports from the US, Canada and NZ. So, there are lots to look forward to for FX traders.
BoE set to raise rates to 0.5%
While the ECB and RBA are unlikely to make policy changes, the Bank of England is expected to hike interest rates 25 basis points on Thursday, as it looks to tighten policy for the second time in less than two months. The BoE, like many other central banks, has started to reverse more of its pandemic
Economic and data highlights for the week ahead
Monday
- Chinese PMIs; Eurozone GDP, German retail sales and CPI estimates
- Monday also marks end of January, so watch out for some month-end flows and portfolio rebalancing
Tuesday
- Data: RBA policy decision
- German unemployment among second-tier European data dump
- US ISM manufacturing PMI
- Earnings: Alphabet, AMD, PayPal, Starbucks and Exxon Mobil, among others
Wednesday
- NZ employment report
- Eurozone CPI
- OPEC+ meeting
- ADP US private payrolls
- Earnings: Meta Platforms (FB), Alibaba and Just Eat
Thursday
- Bank of England and European Central Bank meetings
- US ISM services PMI
- Earnings: Amazon, Snap and Ford
Friday
- German factory orders, Eurozone retail sales among handful of Eurozone data
- US non-farm payrolls report and Canadian jobs report
South African Markets in Focus
By Kearabilwe Nonyana
Our local South African market has seen volatility increase in recent weeks, mainly due to the impact of global macro factors. Like the rest of the world, local inflation is surging. Here, we also have stagnating growth, as well as economic policy uncertainty, unreliable energy production and a changing landscape on monetary policy. The SARB increased the repo rate by 0.25% and sighted heightened upside risk to the inflation projection due to higher administered price, higher wages as well as supply shocks. In the US, the FOMC sighted the first move on interest rates in the March meeting which the market was aware of, but the tone has changed noticeably hawkish. JSE ALSI looked set to close the week about 4% lower.
The week ahead
The South African Market is light on economic news. Most of what will drive our market will be global macro factors or any news coming out of the geopolitical sphere with the heightened risk of tensions in eastern Europe with Russia and Ukraine.
PMI
On Thursday 3rd February, we will have the latest PMI data. It has been above the expansionary mark of 50 for a while, although it showed some weakness in December due to supply shortages. It will be good to see some positive signs and not a decline in the month of January. The month of January is usually slow due to the seasonal post-Christmas decline in demand.
Private sector credit
On Monday 31
st January 2021, the latest private sector credit data will be released for the month of December. With monetary policy direction changing to a rate hiking season, it will be important to see how lenders are still willing to fund the economy both for retail and business customers. So, be on the lookout for banks. As interest rates rise, they make more money on their floating rate loan books, and this will add to their earnings potential. The stock I have been watching has been
Absa:
Absa currently trades at an all-time high, with a still relatively-low forward P/E of 7.99.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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