5 Things to Watch this Week

This will be a turbulent and busy week, with some major events set to ignite high volatility in the markets.

I strongly advise you to look at the economic calendar since there'll be several impactful reports being published, namely those indicators related with GDP, inflation and employment.

As usual, I selected five key events (and it wasn't an easy choice...).

January 30th

Euro Area: GDP growth rate YoY (Q4)

Last week, Christine Lagarde reinforced that any change in the monetary policy is data dependent, and such statement puts an extra pressure on GDP numbers. The market is pricing in a 76% probability of a first cut being announced in April, in a setting of stagnant growth and controlled inflation.

Q4 GDP data for Germany and the Euro Area is set to show the two economies contracting further. This means the ECB will need to cut rates soon to avoid a technical recession scenario.

U.S.: Consumer Confidence

This index increased to a five-month high in December, with Americans growing more optimistic about current and future business conditions as well as the labor market. Although such buoyancy could have been influenced by Christmas spirit, data shows U.S. economy is alive and kicking. The higher the consumer confidence the higher the spending, and markets appreciate the money flow.

January 31st

U.S.: Federal Reserve interest rate decision

No monetary policy changes are expected, but the FED might change the tone of its message since last week's PCE (Price Consumer Index) showed good progress towards the 2% inflation target.

If the tone is dovish markets can price in an interest rate cut for March, and that will be bearish for the USD; if the tone is hawkish the interest rate cut remains on hold and that can make yields move higher across the board, a scenario that is bullish for the USD.

February 1st

UK: Bank of England interest rate decision

The BoE is expected to keep interest rates on hold with a remark that rates need to remain restrictive for an extended period. UK inflation unexpectedly rose to 4% in December and supply disruptions in the Red Sea are adding price pressure for the manufacturing sector.

February 2nd

U.S. Non-Farm Payrolls

I've explained in previous editions what is the NFPR index and why this data is so relevant.

Expectations are that the U.S. economy added 177,000 new jobs in January, slowing from 216,000 in the prior month. A weaker than expected reading could indicate that the economy is losing steam, reinforcing the arguments for an interest rate cut. Conversely, a stronger-than-expected reading could bolster the case for higher interest rates for longer.

This report is coming after the FED meeting but will provide additional discussion on the monetary policy direction. May I remind you that the recent rally on the S&P 500 has been fuelled by the belief on a “soft-landing” scenario, and that a decrease in job openings can be interpreted as a signal of economic deceleration.