Key events to watch in the week ahead: 29 January - 4 February 2024

This week’s overview

Wall Street scaled to yet another fresh record high last week, as a series of US economic data continues to put inflation concerns on the back burner while feeding into soft-landing hopes. This comes amid some recalibration in the Federal Reserve (Fed) rate expectations, with a March rate cut now seen as a coin toss versus the 75% probability priced at the start of the month.

On another front, further monetary easing from China’s central bank did trigger some unwinding in bearish bets, but whether the policy move translates to a turnaround in economic conditions remains a question, given the limited success in previous support measures.

As we head into the new week, here are four things on our radar.

US earnings season: Alphabet, Starbucks, Advanced Micro Devices (AMD), Microsoft, Meta, Apple, Amazon

The upcoming week may be the busiest for US 4Q earnings season, with five out of the ‘Magnificent seven’ stocks releasing their results. With the group doing much of the heavy-lifting for market gains in 2023, all eyes will be on their upcoming earnings and forward guidance to justify the lofty valuation they carry.

As of 24 January 2024, 14% of S&P 500 companies have released their results, with 85% delivering an earnings beat. This rate of outperformance towers above both the 5-year average (77%) and 10-year average (74%), which suggests that earnings recovery momentum remains intact.

31 January 2024 (Wednesday, 8.30am SGT): Australia’s 4Q inflation rate

Australia’s 3Q headline inflation rose by 1.2%, up from 0.8% in the June quarter and exceeding expectations for a 1.1% increase. Annual trimmed mean inflation was 5.2%, down from 5.9% in the June quarter, but still well above the Reserve Bank of Australia (RBA)’s 2-3% inflation target.

The past two monthly consumer price index (CPI) indicators have shown that since the Q3 release, inflation has continued to ease. The upcoming 4Q CPI is expected to show headline inflation increased by 0.7% over the quarter for an annual rate of 4.2%. The trimmed mean is expected to rise by 0.9%, allowing the annual trimmed mean to ease to 4.3%.

The forecasts are below the RBA’s forecast of 4.5% for the trimmed mean and should provide further relief that inflation is on track to return to the RBA’s inflation target. They should also allow the RBA to cut rates twice by 25 basis point (bp) in the second half of this year, taking the cash rate from 4.35% to 3.85% by year-end.

31 January 2024 (Wednesday, 9.30am SGT): China’s National Bureau of Statistics (NBS) purchasing managers index (PMI)

1 February 2024 (Thursday, 9.45am SGT): China’s Caixin manufacturing PMI

Despite a series of policy support over the past year, China’s PMI figures have not seen much of a turnaround in economic conditions. Last month, its official manufacturing PMI contracted further to 49.0, falling for the third straight month. Its services PMI disappointed to the downside as well, hanging just above expansionary territory at 50.4.

Overall, a series of economic challenges remains, which include tepid domestic demand, soft labour conditions and a property market slump. Market calls for more policy support were answered last week, when the China’s central bank announced a larger-than-expected 50 bp cut to its reserve requirement ratio (RRR) and further measures for its property sector. That will leave markets scouring for any improvement in economic data ahead as a reflection of policy success.

Ahead, expectations are for China’s January manufacturing PMI to stabilise at 49.2 from previous 49.0, while services PMI may improve to 50.6 from previous 50.4. Its Caixin manufacturing PMI is expected to tick slightly higher to 50.9 from previous 50.8.

1 February 2024 (Thursday, 3am SGT): US Federal Open Market Committee (FOMC) meeting

In December, the FOMC kept the Fed Funds rate unchanged at 5.25%-5.50% for a third consecutive meeting. In the accompanying statement, the Fed noted that economic growth has slowed, job gains have moderated, and inflation has eased. The all-important Fed’s “dot plots” within the Summary of Economic Projections (SEP) indicated 75 bp of rate cuts in 2024.

In the first half of January, encouraged by the six-month annualised core Personal Consumption Expenditures (PCE) inflation rate falling below 2%, the US rates market priced in almost 170 bp of the rate cuts, with the first 25 bp rate cut ~50% priced for March.

Before the Fed’s blackout period for the upcoming meeting commenced, and perhaps with an eye to the run of hotter than expected data in January, Fed Reserve Governor Waller pushed back against expectations of aggressive rate cuts and said he saw no reason to cut rates “as rapidly as in the past”.

This month, the FOMC is expected to keep the Fed Funds rate unchanged at 5.25%-5.50%. The statement is expected to be similar to the December statement and will not signal that the start of a rate-cutting cycle is imminent.

1 February 2024 (Thursday, 6pm SGT): Eurozone’s inflation rate

Last week, the European Central Bank (ECB) has kept interest rates unchanged for the third straight meeting. This comes as annual inflation has been surprising on the downside since September 2023, while the core inflation – a measure closely watched by the central bank has also reached its lowest level since April 2022 at 3.4%. This reflects that the current restrictive monetary policies are having some success in keeping inflation under control.

That said, at the recent ECB meeting, ECB President Christine Lagarde has tried to keep dovish expectations in check by stressing that any discussion on rate cuts are still premature. With markets leaning towards six quarter-point cuts from the ECB through 2024, with the first cut being as early as April, further progress on the inflation front will be on watch to provide support for such dovish pricing.

Ahead, expectations are for headline CPI to ease to 2.7% year-on-year from previous 2.9%. The core aspect is expected to soften as well, with consensus for it to head to 3.2% from previous 3.4%.