The new week kicked off with Chinese equities jumping into a bull market as traders returned from their Lunar New Year holiday.

The S&P500 and Nasdaq also freed themselves from the 2022 bearish trend, while global bond markets had their best January since 1990.
And if the equity rally is still on a shaky ground – due to fear that the slowing economy could hit company earnings – the future in bonds looks brighter.

In the macro front, the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE) will be announcing their latest policy verdicts, between Wednesday and Thursday.

For the Fed, there is extremely little doubt that this week’s rate hike won’t be anything more than a meagre 25bp hike.

The ECB is expected to hike by 50bp this month, while we don’t know by how much the BoE will be raising its rates. In one hand, the BoE should continue fighting against inflation – which remains in the double-digit zone in Britain. On the other hand, the economic outlook for Britain is so morose – with country-wide strikes adding salt and pepper to the gloomy picture that Bailey cannot throw a series of 50bp hikes in the middle like Madame Lagarde.

Elsewhere, the Indian markets are being shaken by the Adani scandal. OPEC will meet this week, and big US companies including Amazon, Apple, Google, Meta, Exxon, Starbucks and Ford are due to announce earnings throughout this week!

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US equities rallied on Thursday, boosted by a decent rally in Tesla and Chevron stocks, and a better-than-expected GDP read in the US.
But be careful! The US growth number was good, but not necessarily for good reasons.

The US will reveal another gauge of inflation, the PCE data, that is closely watched by the Federal Reserve (Fed). A slower than expected core PCE would be a cherry on top for closing a week where the S&P500 rallied past its 2022 bearish trend top, and which could soon confirm a cup and handle pattern above the 4100 mark.

But beware, Intel slumped 10% in the afterhours trading after revealing a worse-than-expected quarterly loss due to a steeper than expected fall in PC chip sales, and giving a weaker-than-expected forecast for the current quarter.

In the FX, the US dollar is better bid on the back of a strong GDP report, while gold is down from the $1950 resistance. The EURUSD is again below the 1.09 mark, while Cable consolidates below 1.24, with a clear resistance forming into the 1.2450 mark. The AUDUSD on the other hand extends gains above 71 cents level as the heated inflation report this week boosted the Reserve Bank of Australia (RBA) hawks. The market remains strongly short the Aussie, meaning that if the Aussie gains further momentum to the upside, we could see a short covering that could further emphasize the bullish trend.

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The S&P500 was flat yesterday, as investors tried to make sense of the deluge of company earnings that hit the fan before, during and after the session. Microsoft didn’t gain on better-than-expected earnings, and Tesla announced record profits, but the share price jumped only 5% in the afterhours.

Latest positive price action in stocks – which is now fading, and the positive price action in bonds suggest that the recession odds became less for stock traders, and more for bond traders since the start of this year. And that’s a risk for stock gains, besides earnings.

In central banks, Bank of Canada (BoC) hiked its bank rate by 25bp yesterday and announced to pause. The BoC decision spurred the expectation that the Federal Reserve (Fed) could do the same: hike by 25bp next week then pause.

For the Bank of England (BoE), investors are almost sure that the year will end with a 25bp hike due to the slowing economy.

But in Australia, the surprise rebound in Australian inflation, spurred the Reserve Bank of Australia (RBA) hawks yesterday.

In summary, investors’ hearts will continue to swing between slowing economy and easing inflation, and the bumps in inflation along the way.
But the data will tell who is right and who is wrong. All eyes are on US GDP today!

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Trading in the US was eventless, except for the wild moves that marked the opening bell at the NYSE.

The S&P500 swung around the 4000, without any major moves up or down, as investors remained undecided faced with mixed company earnings, and mixed economic data.

Microsoft announced better-than-expected results yesterday, but the 5% rally in the afterhours trading rapidly faded. Tesla is due to announce its earnings today.

In the FX, the US dollar remains under the pressure of soft data, and worryingly softening Fed expectations.

The EURUSD is testing the 1.09 resistance on encouraging PMI data, while sterling is softer on growing slowdown worries.

In Canada, the Bank of Canada (BoC) is preparing to announce its final 25bp hike. The dollar-CAD puts increasing weight into clearing the 1.3350 support, but crude oil is not helping, as the price of a barrel of American crude continues bumping its head against the solid $82pb wall, the 100-DMA, without being able to break it to the upside.

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The week started with more news of layoffs, and further gains in the S&P500.

The S&P500 traded above the 200-DMA, yet again. Earnings will decide whether the latest gains will be sustainable.

All eyes are on Microsoft – not only because it will release Q4 earnings after the bell, but also because it’s been making a great buzz since the start of the year thanks to its bet on ChatGPT. The company confirmed yesterday that is putting $10 billion into the now-very-famous ChatGPT.

On the macro front, PMI data released this morning showed that the manufacturing activity in Japan didn’t improve in January, while Australia’s manufacturing PMI slipped below 50, into the contraction zone for the first time in 32 months, but business confidence improved to a three-month high, on China’s reopening.

Elsewhere, the EURUSD couldn’t consolidate gains above the 1.09 mark yesterday. But today’s PMI data could help give another boost to the single currency. And, if not, the message from the European Central Bank (ECB) is crystal clear: the rate hikes will continue and that’s positive for the euro.

Watch the full episode to find out more!