A look at the day ahead in the markets from Amanda Cooper, Editor of European Breaking News.
This week promises to be one of the most action-packed in a long time. Three of the world’s most influential central banks are likely to hike interest rates to their highest levels since the financial crisis as the Q4 earnings season gathers momentum.
Big tech royalties in the form of Apple (AAPL.O), Alphabet (GOOGL.O), and Amazon (AMZN.O) are providing revenue. With the tech sector suffering from profitability and jobs, what these three say could carry almost as much weight as what the Federal Reserve says on Wednesday’s economic outlook.
With 109 of the 500 constituents of the S&P (.SPX) reporting in the next five days alone, investors will be in for a non-stop barrage of hot assumptions on everything from inflation to the impact of the dollar’s swings to China and Furthermore.
The euphoria that marked the end of 2022, fueled by China’s lifting of COVID restrictions and cheaper energy prices, has increased this month despite a decidedly somber earnings season and central bankers’ insistence that high inflation is going nowhere. continued soon.
The S&P itself is heading for a 6.1% gain this month — which would mark its best January since 2019. According to Refinitiv data, the first month of the year is one of the strongest anyway.
Over the past 94 years, the S&P has risen an average of 1.2% in January, compared to an average rise of 1.3% in December, the month with the highest returns.
One of the biggest boosts the stock market has enjoyed this January has been a seemingly iron-clad belief among traders and investors that while the Fed isn’t exactly bluffing, it won’t hike rates as much as policymakers say and that the Inflation will prove nowhere near sticky.
This has caused 10-year Treasury yields to fall by nearly 30 basis points, and the S&P in January hasn’t gotten as much bang for its buck from such a recent decline in yields.
Even in strong January months like 2019, when the index rose 7%, 10-year yields only fell 6 basis points. In January 1987, when the index was up 13%, yields fell just 6 basis points.
With so much resting on the Fed being wrong and the markets being right on the monetary policy outlook, there seems to be a lot more room than usual for stock bulls to get a slap in the face from anything that could force a rethink where US interest rates could peak.
Reuters graphics
Key developments that should give markets more direction on Monday:
– Dallas Fed Manufacturing Business Index January -18.8 before
– Dallas Fed PCE 3.4% previously
– German economy unexpectedly shrinks in Q4
Reporting by Amanda Cooper; Editing by Hugh Lawson
Our standards: The Thomson Reuters Trust Principles.
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