The coming week seems to be a key one for the narrative for the entire quarter, as the Federal Open Market Committee (FOMC) interest rate meeting will take place on Wednesday, with Fed Chairman Jerome Powell set to speak. One question on most investors' minds is when the first interest rate cut will take place. The answer could significantly affect the outlook for financial markets in the near future. On Thursday, we will receive preliminary inflation readings from the eurozone, and just after that the Bank of England will make a key decision on interest rates. The week will conclude with the publication of data on the US labour market, which has been strong for many months.
Table of contents:
- US interest rate decision
- Eurozone consumer price index (CPI) annualised (January)
- UK interest rate decision
- US unemployment rate (January)
- Stocks to watch
Wednesday, 31.01, 19:00 GMT, US interest rate decision
In December 2023. The Federal Open Market Committee (FOMC) decided, in line with market expectations, to maintain the federal funds rate at 5-5.5%, the fourth such decision in a row. However, following the latest meeting, there appears to have been a significant shift in sentiment regarding future interest rates, as the FOMC suggested a possible cut of a total of 75 basis points in 2024.
The Committee agreed that the latest data indicators point to a slowdown in the growth of economic activity, particularly after a robust third quarter. Although employment gains remain moderate, they remain strong and the unemployment rate remains low. It is also worth noting that although inflation has fallen over the past year, it remains at elevated levels.
The current analyst forecast indicates no change in interest rates by the FOMC at the upcoming meeting. According to the FedWatch tool, there is as much as an 85.2% probability that a possible cut would take place in May.
Source: Tradingeconomics.com
A higher-than-expected interest rate could be bullish for the USD, while a lower-than-expected interest rate could act bearishly on the USD.
Impact: USD
Thursday, 1.02, 10:00 GMT, Eurozone consumer price index (CPI) annualised (January)
The CPI monitors changes in the prices of consumer goods and services. The CPI is an important indicator because it helps us to understand trends in consumers' purchases and the impact of inflation on their purchasing power. It is calculated on the basis of a basket representing typical consumer spending, covering various categories such as food, housing, transport, etc. Regular measurements of the CPI allow us to track how the prices of these products and services change over time. A positive CPI indicates an overall increase in the prices of goods and services.
On the other hand, a negative CPI means that prices are lower than the year before. It is an important tool for economists and policymakers to help them understand the impact of inflation on the economy and take appropriate action. For consumers, it is information about how their money is losing value in the context of rising or falling prices, allowing them to adjust spending, plan savings and make financial decisions.
The inflation rate in the euro area was confirmed at 2.9% in December 2023, up from its lowest level in more than two years of 2.4% in November. This increase was mainly due to a slowdown in the rate of decline in energy prices, whose inflation rate was -6.7% in the previous month, compared to -11.5% in November. The core index, excluding volatile food and energy prices, fell to 3.4%, its lowest level since March 2022.
The current analyst consensus points to a decline in inflation from the preliminary reading to 2.2%.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the EUR, while a lower-than-expected reading could be bearish for the EUR.
Impact: EUR
Thursday, 1.02, 12:00 GMT, UK interest rate decision
December 2023. The Bank of England held interest rates at 5.25% for the fourth consecutive month, the highest level since the 2008 crisis. Forecasts from November's Monetary Policy Report predicted GDP stability. Inflation was not expected to return to the 2% target until 2025. Current figures show a fall in inflation to 4% in December. It should be added here that the decision to maintain interest rates was not unanimous, with six members supporting maintenance and three supporting an increase to 5.5%. Some see a risk of rising inflation, while others fear excessive policy tightening. However, none of them, compared to the rest of the West, seem to be assuming an interest rate cut in the near term, which could weaken sterling.
The current analyst forecast suggests no change in interest rates at the next Bank of England meeting.
Source: Tradingeconomics.com
A higher-than-expected interest rate could be bullish for GBP, while a lower-than-expected interest rate could act bearishly on GBP.
Impact: GBP
Friday, 2.02, 13:30 GMT, US unemployment rate (January)
Unemployment rates are important for economic analysis and can affect social and economic aspects. A high unemployment rate is associated with lower incomes and increased poverty, while a low unemployment rate promotes increased wages and social welfare. Governments and policymakers monitor the unemployment rate to assess the effectiveness of employment policies and take action to create jobs and support the unemployed. However, it should be remembered that the unemployment rate is one of many tools for assessing the labour market. Analysing other indicators, such as the labour force participation rate or wages, is also essential.
The US labour market remains relatively stable, although the unemployment rate rose to 3.9% in December 2023. The first signs of concern come in the context of unemployment rising in 15 states, falling in one and holding steady in 34 others. Despite this, the nationwide unemployment rate remains at 3.7%, still one of the lowest in decades.
Current analyst forecasts suggest that this trend will continue at 3.7%.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the USD, while a lower-than-expected reading could be bearish for the USD.
Impact: USD
Stocks to watch
Microsoft (MSFT) announces financial results for the quarter ending December 2023. Forecast EPS: 2.29. Positive earnings surprise in 9 of the last 10 reports. Deadline: Tuesday, 30 January.
Alphabet/Google (GOOGL) announces financial results for the quarter ending December 2023. Forecast EPS: 1.6. Positive earnings surprise in 6 of the last 10 reports. Deadline: Tuesday, 30 January.
Apple (AAPL) announces financial results for the quarter ending December 2023. Forecast EPS: 2.1. Positive earnings surprise in 9 of the last 10 reports.
Deadline: Thursday, 1 February.
Amazon.com (AMZN) announces financial results for the quarter ending December 2023. Forecast EPS: 0.7849. Positive earnings surprise in 7 of the last 10 reports.
Deadline: Thursday, 1 February.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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