GEMFOREX - weekly analysis

The week ahead could be one of the most important weeks of the year. Here are some of the major news releases to look out for:

FOMC rate decision (01stof February) 

As we look forward to the year, the question is how many additional rate hikes central banks will be conducting until year-end.

Over the past month, we‘ve seen disagreements on the FOMC as to whether we’ll see a step down to a 25 bps rate hike, or whether we follow up the 50 bps hike seen in December. 

As things stand, the markets are continuing to price in at least 50 bps of rate cuts this year, which seems optimistic with unemployment at 3.5% and a 50-year low.

For this week, the market is pricing in a 25 bps rate hike, which suggests that there is a growing union on the committee for a slowdown in the pace of rate hikes.

With the Fed funds rate currently between 4.25% and 4.5%, and financial conditions loosening, there is a risk that inflation could become slightly more persistent in the coming months.

Bank of England rate decision (02ndof February)  

The Bank of England still faces a dilemma, as the UK economy continues to struggle with double-digit inflation. There could be an upside though, as the economy may not be as bad as the predictions stated at the end of last year. 

The drop in energy prices in recent months has lessened some of the pressure when it comes to petrol prices. The same cannot be said for food, as with food price inflation still at 16%, the BoE will be acutely aware that a weakened pound will make headline inflation much more sticker than it needs to be. 

There will be the usual concerns about the impact on mortgage costs from another 50bps. No matter the news release, there will be conflicting opinions again, with the likes of Tenreyro and Dhingra likely to be the most averse to another hike given that they voted for no change in December. 

On the other hand, the likes of Catherine Mann are likely to push for another 50bps, while the rest of the committee expected to split between 25bps and 50bps, from the current 3.5%. 

ECB decision (02ndof February) 

It seems more than likely we will see another 50 bps rate hike this week, with a plethora of ECB council members aggressively supporting multiple 50 bps rate hikes in the months to come.

ECB President Lagarde doubled down on that in the wake of the Davos Economic Forum, saying that inflation is still way too high, and markets are underestimating the ECBs resolve to drive prices back towards their 2% inflation target. 

While the ECB did step down to a 50 bps hike in December, there were members of the council who wanted another 75 bps hike. When the ECB met in December, President Lagarde more or less pre-committed the ECB to at least another 3 50 bps rate hikes at the next 3 meetings, in a move that has seen the euro push higher, but thus far has failed to see it follow through. This suggests that markets are not convinced that the ECB will be able to follow through on such guidance, given the risks it might pose to the borrowing costs of the EU members with the highest debts.

US non-farm payrolls (03rdof February) 

As the consensus continues towards a downward revision in US rate rise expectations, and a 25 bps rate hike this week, there is likely to be an increasing focus on the unemployment rate as we head into 2023. Further headlines about job losses in the coming weeks will add to that.

So far there has been little evidence of a slowdown in the US labor market with weekly jobless claims dropping below 200k earlier this month. In the December payroll numbers, 223k new jobs were added, while the unemployment rate fell to 3.5% from 3.6%. 

With the unemployment rate remaining at multi-year lows, the US central bank has little incentive to cut rates when inflation remains almost 3 times higher than its 2% target.  

January payrolls are expected to come in at 175k, with the unemployment rate set to edge higher to 3.6%. 

Apple Q1 23 (02ndof February) 

In the weeks since Apple reported its Q4 numbers in October, the shares hit their lowest levels since May 2021, before recovering to their current levels. As we look towards this week‘s Q1 numbers, which tend to be the company’s best quarter, expectations are starting to be tempered given the problems with respect to its China supply chains and production shutdowns at Foxconn at the end of last year, which caused Apple to issue a warning over its iPhone production, and a potential shortfall of up to 6m handsets. 

When the company reported in Q4 all the numbers were in line with expectations, albeit with a slight negative bias after services revenue fell short, as did iPhone revenue. Overall Q4 revenue beat expectations, at $90.15bn, helped by strong beats on Mac and Wearables, however, on iPhone revenue, this fell fractionally short at $42.63bn, as did services at $19.19bn, below $19.65bn. iPad sales also missed $7.2bn. 

Mac revenue came in at $11.51bn, exp $9.25bn, wearables $9.65bn, exp, $8.8bn. The Greater China region continued to be a drag with revenues of $15.47bn. When Apple reported last year Q1 revenue came in at $123.95bn with iPhones contributing $71.6bn of that total, as profits came in at $2.10c a share. 

In both of its biggest markets at the end of last year, retail sales in the US and China contracted sharply in a sign that consumers were cutting back sharply. Profits for this Q1 are expected to come in at $1.95c a share.

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