The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
It took fresh hopes of more ECB stimulus and a sharp recovery in oil prices to coax some risk appetite out from global investors. However, it remains to be seen whether overnight markets will extend their Thursday gains over to Friday. In late Asia, it looks like they would.
From my point of view, the ongoing global financial market turmoil is far from being done. There are expectations that we are going to see more pain before we see more permanent relief. No rainbows until the gods have cried its fill, if you will. Mind you, the current stress in the markets will dissipate, but just not anytime soon. Concerns about China will remain. Focus will be on further yuan devaluation, which I feel is a high possibility, although gradually, not sharply.
We are in an aging bull market, where there are currently few impetus to push risk assets higher. This means traders and speculators will thrive on short-term developments to base their trades on. As a result, expect more bouts of market volatility.
US Fed back in focus
The Fed will come back into focus next week, where market expectations for subsequent rate hikes have been pared down. It is widely expected that the US central bank will not move on interest rates in the 26-27 Jan FOMC meeting.
So market participants will place more emphasis on what Chairperson Janet Yellen will say during the press conference. Any indications of a more dovish statement will fan rumours that the Fed may eventually have to consider QE4.
Perhaps in a twisted manner, this could place a floor to the current global stock slump, as long as QE4 hopes are not underwhelmed by fears that the global economy is in a worse shape than previously thought.
The season of US corporate earnings will intensify next week, where over one-quarter of S&P 500 firms or 134 will be reporting.
After the financial firms reported results, the coming week will see a litany of tech companies doing their rounds. Apple Inc, alongside Facebook, Alibaba, Microsoft, Amazon, Chevron, Roche, Colgate Palmolive, Caterpillar, eBay, will be reporting results. On the data front, we have several business sentiment and PMI data on the tap, alongside housing data and durable goods orders.
In Europe, it is good to keep an eye on German Jan inflation, Gfk consumer confidence, IFO business confidence, as well as euro-area consumer confidence. In Asia, the Bank of Japan will set their monetary policy, where we don’t expect an expansion of the QQE programme. The Bank was reported to be considering extending the deadline to meet the 2% inflation target, which will be the third time in a year.
Furthermore, inflation forecasts are expected to be cut. Clearly, the markets will pay close attention to Chief Kuroda’s post-decision remarks. Inflation data, unemployment figures, industrial production and retail sales are scheduled for release.
China will release their industrial profits for December next Wednesday. We may also expect an increase in cash injections via open market operations (OMO), as the Lunar New Year approaches, which usually sees a spike in demand for monies. Australia and Singapore will release their inflation numbers while South Korea and Taiwan are expected to announce their Q4 GDP results.
*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG