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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Key events to watch in the week ahead: 23-27 Jan 2023

The upcoming week could see less hawkish Fed comments as we head into the blackout period, but sentiments will remain highly sensitive to incoming economic data and key corporate earnings releases to drive market moves.

Markets Source: Bloomberg

This week’s overview

This week has presented a more risk-off tone in markets, with the VIX reclaiming back above its key 20 level as a sign of mounting market stress. Continued downside surprise in US inflation and deeper contraction in growth data have thus far failed to sway Federal Reserve (Fed) members in feeding markets with pivot hopes, with various Fed comments still guiding for a more hawkish rate path (above 5%) as compared to current market pricing. Perhaps the pocket of optimism is that we will see less of such comments as we head into the official Fed blackout period at the end of this week, but that will still leave sentiments highly sensitive to incoming economic data and key corporate earnings releases to drive market moves.

Here are some of the key events to watch next week:

25 January 2023 (Wednesday): Inflation figures from New Zealand, Australia and Singapore

Closer to the Asia region, inflation figures from New Zealand, Australia and Singapore will be due next week to provide further clues on central banks’ policies ahead. Coming off an upside surprise in Australia’s November monthly inflation, along with still-elevated reading of 7.3%, another 25 basis-point (bp) from the Reserve Bank of Australia (RBA) in February remains the consensus with a 62% probability being priced. That will, however, potentially mark the last rate hike from the central bank, with confirmation to be sought from the upcoming central bank’s guidance. On another front, Singapore’s inflation rate will also be due for release, with the core aspect still providing little conviction that a peak is in place. Past two months’ readings have hovered around 5.1%, just barely a tick lower from its high at 5.3%, potentially pointing to some pricing persistence.

25 January 2023 (Wednesday): Bank of Canada’s interest rate decision

Heading into the Bank of Canada’s (BoC) interest rate decision, market expectations have been somewhat split between a no-change (40.3%) and a 25 bp hike (59.7%), leaving the upcoming decision a potential close-call. Just this week, there are promising signs of moderating inflationary pressures but this will be pitted against still-elevated readings and a stronger-than-expected labour market, which leaves prospects of further tightening move on the table. Current market pricing suggests that an upcoming 25 bp hike will be the last tightening move, bringing a subsequent rate pause in sight and any confirmation from the central bank will be perceived as a dovish take. For now, the USD/CAD remains supported by an upward trendline, with a bullish crossover on moving average convergence/divergence (MACD). Any move above the 1.350 level of resistance will be on watch to pave the way higher towards the 1.370 level next.

USD/CAD Source: IG charts
USD/CAD Source: IG charts

26 January 2023 (Thursday): Advance estimate for US Q4 GDP

Risk assets have been hammered this week, as significantly lower-than-expected economic data gave rise to mounting growth concerns, with the narrative seemingly shifted towards ‘bad news for the economy is bad news for the markets’. While the upcoming US quarter four (Q4) gross domestic product (GDP) data may be backward-looking, a more resilient number could be looked upon to provide more conviction of a potential ‘soft landing’ and room to avoid a recession ahead. Current expectations are for US Q4 GDP to come in at 2.8% quarter-on-quarter, down from the previous 3.2%.

27 January 2023 (Friday): US core Personal Consumption Expenditures price index

Being the Fed’s preferred inflation measure, the December number for US core Personal Consumption Expenditures (PCE) price index will be in focus to provide the last glimpse of pricing pressures before the next Federal Open Market Committee (FOMC) meeting (31 Jan – 1 Feb). Thus far, past few months of downside surprise in inflation have failed to sway Fed policymakers’ views of having a peak rate above 5%, with market participants looking for another lower-than-expected reading to support their less-hawkish pricing for Fed’s rate outlook. That said, market reaction to the moderating-inflation story has been more measured recently, seemingly with much already being priced after past two consecutive months of inflation downside surprise. It may now take a shift in tone from the Fed to drive a more sustained rally, which could still be unlikely to play out yet, with inflation more than two-fold above its target 2%.

23-27 January 2023: US big tech earnings release (Microsoft, Tesla)

Companies accounting for around 26% of S&P 500 market capitalisation will be releasing their earnings next week, which includes US indices’ heavyweights such as Microsoft and Tesla. Both companies are likely to see further earnings moderation from economic pressures, with Microsoft expected to face its weakest earnings growth since 2016 while latest vehicle delivery figures for Tesla suggests that it may fall short of its 50% growth target each year. With both valuation still trading at a premium above the broader market (S&P 500), failure to meet market expectations could call for further downward re-rating in share price. The Nasdaq 100 index has thus far failed to overcome a downward trendline resistance, which is key in pointing to a potential reversal in sentiments. On the downside, the 10,600 level will be on watch in marking multiple bottoms over the past quarter.

Nasdaq Source: IG charts
Nasdaq Source: IG charts

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