In the financial markets, the past week may have been like the quiet before the storm that decisions by key central banks may trigger in the coming days. In the quiet, we could see a positive trend across a number of asset classes. Technology companies proved to be a particular gem. Could this signal expectations of a softer approach from central banks?
Macroeconomic data
ECB President Christine Lagarde held a conference call on Monday. She said that the global economy is now at an important turning point. She pointed to three important factors that are creating a new map of the global economy: shocks, supply and security. Lagarde noted that the rise of free international trade, which has brought stability, depends on the support of a 'global hegemon', but now economies such as the US and China are increasingly using trade to curb the ambitions of political rivals, which could lead to fragmentation of global trade and potentially huge costs. Lagarde also pointed out that this shift has important implications for Europe, and presents Europe with three major challenges: protecting its interests, developing its own sources of growth and preparing for the fragmentation of the global economy.
On Tuesday, the German and UK PMI industrial business sentiment indicators became known. The former was worse than analysts' expectations at 47 points (47.9 was expected). For the UK, the index came in at 46.7 points (45.4 had been expected) against the previous reading of 45.3. It seems that, despite all the economic problems, the UK stock market is pricing in a recovery in the near term for this economy.
Source: Conotoxia MT5, UK100, Daily
Wednesday saw the reading of the IFO Business Climate index, which reflects German entrepreneurs' views on the current economic situation and forecasts for the next six months. The index rose in line with expectations to 90.2 points (previously 88.6 points), the fourth consecutive increase. On the same day, we learned of the central bank of Canada's decision on interest rates, which were raised by 0.25 percentage points to 4.5%. CPI inflation for this economy now stands at 6.3% and is falling for the seventh consecutive month. Next, we learned about readings of the weekly change in US crude oil inventories. Oil increased by 0.5 million barrels (0.9 million barrels were expected) compared to last week's increase of 8.4 million barrels. This may signify a temporary stabilisation of supply and demand volumes in this market, which may indicate reduced volatility for crude prices in the near term.
Thursday seemed particularly important in terms of data from the United States. We started the day with a reading of building permits issued, which fell for the ninth consecutive month to 1.337 million (previously 1.351 million). Despite the noticeable slowdown for the construction market in this economy, these are still not comparable levels from the 2008 real estate crisis, when the figures reached levels of 0.5 million. On the same day, we learnt the GDP reading, which grew by 2.9% year-on-year in Q4 2022. (2.6% y/y was expected). Also positive for this market could have been the news of the number of new unemployment claims, which was lower than expected at 186,000 (205,000 was expected). This news may have given a boost to the S&P 500 Index (US500), which is up 2% since the start of the week.
Source: Conotoxia MT5, US500, Daily
On Friday, attention seems to be on the US PCE inflation reading. Currently, analysts' consensus is 0.3% m/m. (previously 0.2% m/m.). The outcome of the reading could weigh on whether we see an increase or a decrease today.
The stock market
In the US, the technology sector was the strongest performer this week, rising by an average of 6.6%. We could see this from the performance of the Technology Select Sector SPDR Fund (XLK), among others. In second place was the consumer cyclical sector. The Consumer Discretionary Select Sector SPDR Fund (XLY) was trading up by 6.2%. The worst performing sector was the medical sector, which rose by 0.2% on average.
Source: Conotoxia MT5, XLK, Daily
The earnings season is underway. This week's key reports we learnt about included Tuesday's report from technology giant Microsoft (Microsoft). The company reported stronger-than-expected earnings per share EPS of US$2.32 (US$2.3 was expected). There is no denying that the giant's recent investments in OpenAI and attempted acquisition of gaming giant Activision Blizzard (Blizzard) have been increasingly talked about. On the same day, multinational cosmetics conglomerate J&J (J&J) reported EPS of US$2.35, which was a positive surprise against a forecast of US$2.24.
Source: Conotoxia MT5, Microsoft, Daily
Since the start of the week, one of the biggest risers on the US stock market has been Tesla (Tesla), whose Q4 2022 EPS reported on Wednesday beat analysts' expectations at USD 1.19 (USD 1.15 was expected). Shares in the largest electric car maker have risen more than 20% since the start of the week. Aircraft maker Boeing (Boeing) was negatively surprised, reporting EPS of minus US$1.75 (US$0.27 expected).
Source: Conotoxia MT5, Tesla, Daily
On Thursday, we were able to find out the amount of money we spent at the end of last year from reports from the two largest payment service providers VISA (Visa) and Mastercard (Mastercard). It turned out that the EPS results of these companies surprised analysts, coming in at USD 2.18 (USD 2.01 was expected) and USD 2.65 (USD 2.58 was expected), respectively. However, we were negatively surprised on the day by a report from processor and graphics card maker Intel (Intel), whose earnings per share came in below expectations at USD 0.1 (USD 0.22 was expected).
Currency and cryptocurrency market
Among currencies, we saw the biggest increase for the Australian dollar/US dollar (AUD/USD) pair - up more than 2% over the week. In second place was the EUR/GBP pair, which rose by 0.5%. The cooling of volatility may have been linked to the lack of an interest rate decision among the major central banks.
Source: Conotoxia MT5, AUDUSD, Daily
The cryptocurrency market is seeing a cooling off after drastic increases and a return to levels above the collapse of the FTX exchange. Bitcoin was up 0.5% during the week, fluctuating at USD 23,000. The second-largest cryptocurrency ethereum performed worse, falling 3.2%. stablecoin's capitalisation was virtually unchanged from last month. This is the first month since May 2022 in which we do not see a significant decline in their value. Should increases in this indicator occur, this could indicate an influx of new funds into the cryptocurrency market.
Source: Conotoxia MT5, ETHUSD, Daily
What can we expect next week?
Next week will start with Monday's German GDP data for Q4 2022 (previously 0.4% q/q). On the same day, we will learn China's PMI reading. It is expected to rise to 49.7 points (previously 47 points). On Tuesday, Germany's CPI inflation reading will be known, the forecast is for an increase to 9.1% (8.6%). Wednesday seems particularly important for the markets, during which we will learn the FOMC's interest rate decision. An increase of 0.25 percentage points is assumed, to 4.75%. On the same day, we will learn the weekly reading of the change in oil stocks and the PMI for manufacturing in this economy, for which the forecast is 48.2 points (previously 48.4 points).
The second key day next week seems to be Thursday, during which we will learn the decision of the world's two main central banks on interest rates. First, the Bank of England will announce its decision. Analysts expect a 0.5 percentage point rise in rates, to 4%. Then we will learn the decision of the European Central Bank, for which the change in interest rates is expected to be the same as in the UK, to 3%. On Friday, we will know the change in non-farm employment in the US, along with the unemployment rate. Employment is now expected to increase by 175,000 (previously 223,000), which would give an unemployment rate of 3.6%.
Among the key quarterly reports for Q4 2022 will be a report on Tuesday from oil giant Exxon Mobil (Exxon), medical conglomerate Pfizer (Pfizer) and the largest food company McDonald's (McDonald). On Wednesday, technology giant Meta Platforms (Facebook) will report. On Thursday, another two tech giants Apple (Apple) and Google (Alphabet) will report.
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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