“The Week Ahead” offers an insightful preview into the key economic events and market trends that are expected to shape the trading landscape in the coming days. This comprehensive overview delves into a range of significant occurrences, from the release of pivotal economic indicators to the outcomes of major policy meetings, each of which holds the potential to influence market dynamics extensively.
As we embark on a new week, our focus shifts to a series of crucial data releases and economic events. Beginning with the S&P CoreLogic Case-Shiller Home Price Index and the Conference Board’s Consumer Confidence Index, we gain valuable insights into the housing market and consumer sentiment. The week progresses with an array of influential reports including mortgage applications, employment data, manufacturing indices, and more, culminating in the highly anticipated Federal Open Market Committee’s (FOMC) rate decision.
In addition to these specific events, “The Week Ahead” also presents a broader view of the current economic environment. It examines the prospects of a ‘soft landing’ for the U.S. economy, the anticipated trajectory of inflation, and the Federal Reserve’s policy approach amidst these changing conditions. The analysis of the FOMC’s rate decision, in particular, offers a deep dive into the rationale behind monetary policy shifts and their wider implications.
Beyond the U.S., the article shines a light on international developments, including China’s travel surge during the Lunar New Year, diplomatic talks between the U.S. and China, the EU’s financial aid considerations for Ukraine, and ongoing Middle East diplomatic efforts. These global perspectives provide a well-rounded view of the interconnected nature of today’s economic and political landscapes.
Whether you’re a seasoned investor, an economic enthusiast, or simply seeking to stay informed, “The Week Ahead” is your guide to understanding the forthcoming economic events and their potential impact on the market. Join us as we explore these developments and their implications for traders and investors alike.
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The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
January 30th Events
- At 9:00 am, the S&P CoreLogic Case-Shiller Home Price Index for November will be released, providing insights into the housing market trends.
- At 10:00 am, the Conference Board’s Consumer Confidence Index for January will offer a view of consumer sentiment, which is a key driver of economic activity.
January 31st to February 2nd Events
- On January 31st, starting at 7:00 am, the Mortgage Bankers Association’s (MBA) Mortgage Applications for the week ending January 26th will be released, followed by the ADP Employment Report for January at 8:15 am, and the Employment Cost Index for the fourth quarter at 8:30 am. The Chicago Purchasing Managers Index (PMI) for January will be out at 9:45 am. The day will conclude with the Federal Open Market Committee’s (FOMC) rate decision at 2:00 pm.
- On February 1st, Initial Jobless Claims for the week ending January 27th will be announced at 8:30 am, along with Nonfarm Productivity and Unit Labor Costs for the fourth quarter. Manufacturing data will follow, with the S&P Global U.S. Manufacturing PMI (Final) for January and the ISM Manufacturing Index for January, both released at 10:00 am.
- February 2nd will feature a variety of reports throughout the day. The U.S. Employment Report for January will be a focal point when released at 8:30 am, alongside Private Payrolls, the Unemployment Rate, Average Hourly Earnings, and Average Weekly Hours for the same month. At 10:00 am, the University of Michigan’s Sentiment Index (Final) for January and Factory Orders for December will be released. The day will also include data on Total Vehicle Sales for January.
Macro Market
Growth: Soft Landing Anticipated
The U.S. economy is expected to experience a soft landing following a higher-than-anticipated advance in 4Q GDP. The forecast includes an increase in private consumption, while a slowdown is maintained in non-consumer-related areas such as residential and nonresidential investments, along with government spending. Growth in real U.S. GDP is projected at 1.2% year-over-year in 4Q 2024, an increase of 0.6 percentage points, and 2.0% in 2025.
Inflation: Slow Reduction
Inflation, as measured by the PCE index, is anticipated to decline to 2.0% year-over-year by the third quarter of 2025. Core PCE is expected to fall below 3% year-over-year by the first quarter of 2024, but the journey towards the 2% target will likely be gradual, mainly due to persistently high core services inflation excluding housing. Core PCE is forecasted to drop to slightly above the target at 2.5% year-over-year by the fourth quarter of 2024.
Policy: Federal Reserve’s Approach
The Federal Reserve is not expected to introduce further rate hikes and is likely to maintain its current stance at the January 31st meeting. The first rate cut is anticipated in March 2024, followed by quarterly 25 basis point reductions, totaling 100 basis points in 2024 and an additional 100 basis points in 2025. Regarding the Federal Reserve’s balance sheet, a reduction in the redemption caps on Treasury securities starting in March and an end to quantitative tightening in June are expected. The Fed is unlikely to modify the redemption caps on mortgage-backed securities (MBS), showing a preference for an all-Treasury portfolio. The exact timing of ending the balance sheet runoff remains uncertain due to the challenges in estimating reserve demand.
FOMC Rate Decision Review
In the dynamic landscape of the U.S. economy, the Federal Reserve’s monetary policy, particularly its decision to adjust interest rates, plays a pivotal role. As of early 2024, amid fluctuating economic indicators such as inflation and employment rates, the Fed faces the complex task of balancing economic growth with financial stability. This analysis aims to unpack the nuances of the Federal Reserve’s recent rate hike decision, exploring its underpinnings, implications, and potential future paths.
Economic Background and Rationale for Rate Hike
The Federal Reserve’s decision to hike rates is primarily influenced by key economic indicators. In recent times, inflation has been a significant concern. A rate hike is often employed as a tool to temper inflation by making borrowing more expensive, thereby slowing down consumer spending and business investments. This, in turn, can help bring down inflation to manageable levels.
Moreover, the labor market has shown signs of tightness, with unemployment rates at historically low levels and wage growth accelerating. While a strong labor market is a positive indicator, it can also fuel inflationary pressures by increasing consumer spending power. In this context, a rate hike can help moderate these pressures and prevent the economy from overheating.
The Federal Reserve’s Monetary Policy Strategy
At its core, the Federal Reserve’s monetary policy aims to achieve two primary goals: price stability and maximum sustainable employment. The rate hike is a strategic move to balance these objectives. By increasing the cost of borrowing, the Fed aims to cool down economic activities just enough to control inflation without triggering a recession.
This delicate balancing act involves using various tools like open market operations, where the Fed buys or sells government securities to influence the money supply and interest rates. The discount rate, which is the rate at which banks can borrow from the Federal Reserve, is another critical tool. Changes in this rate can influence other interest rates in the economy.
Implications of the Rate Hike
The ripple effects of a rate hike are extensive. For consumers, it means higher interest rates on mortgages, loans, and credit cards, which can reduce spending and borrowing. For businesses, the cost of borrowing for investment increases, potentially slowing down expansion plans.
The stock market often reacts to rate hikes with increased volatility, as investors reevaluate their expectations for economic growth and corporate earnings. Furthermore, higher U.S. interest rates can attract foreign investment, strengthening the dollar, which in turn can impact international trade dynamics.
Future Outlook
The trajectory of the Federal Reserve’s monetary policy will be closely tied to economic data. If inflation remains high or the labor market continues to show signs of overheating, additional rate hikes could be on the horizon. However, if the economy shows signs of slowing down too much, the Fed might pause or reverse its course to avoid a recession.
The Federal Reserve’s rate hike is a strategic response to current economic conditions, aimed at stabilizing the economy while navigating the risks of inflation and economic overheating. Its impact is widespread, affecting everything from consumer behavior to global financial markets. As the economic landscape evolves, so will the Fed’s policy decisions, each with significant implications for the U.S. economy’s path forward.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Earnings
- 23Q4 Y/Y earnings are expected to be 4.9%. Excluding the energy sector, the Y/Y earnings estimate is 8.6%.
- Of the 124 companies in the S&P 500 that have reported earnings to date for 23Q4, 78.2% have reported earnings above analyst estimates. This compares to a long-term average of 66.6% and prior four quarter average of 76.4%.
- During the week of January 29, 86 S&P 500 companies are expected to report quarterly earnings
Source I/B/E/S data from Refinitiv
Global Spotlight
China’s Travel Surge
China is anticipating a significant increase in travel during the Lunar New Year period, starting from the last weekend of January. State media estimates that approximately 1.8 billion trips will be made via public transportation, and around 7 billion by car over the following month. This surge in travel will likely lead to extended delays at major transportation hubs and a slowdown in business and government operations. The period is also seen as a critical gauge of Chinese consumer behavior, amid concerns about real estate, exports, and wage stagnation.
U.S.-China Diplomatic Talks
The United States National Security Advisor and China’s Foreign Minister are meeting in Bangkok for discussions following the recent Biden-Xi meeting. Key topics include the situation in the Red Sea and Taiwan’s political dynamics. The dialogue is expected to cover economic and technological issues, particularly the U.S. restrictions on Chinese technology and Beijing’s response. These talks are part of ongoing efforts to manage differences, including discussions on AI and nuclear policy.
EU Financial Aid for Ukraine
European Union countries are meeting to negotiate a €50 billion aid package for Ukraine, following Hungary’s veto at a previous summit. Hungarian opposition centers on using the EU’s long-term budget for this purpose, leading to discussions on alternative methods to provide aid. The EU Parliament is considering action against Hungary under Article 7 of the EU treaty. If the veto persists, EU countries may opt for bilateral aid agreements to collectively meet the funding goal for Ukraine.
Middle East Diplomatic Efforts
Israel, the U.S., Egypt, and Qatar are engaging in diplomatic talks to address the hostage situation and ongoing conflict in Gaza. Israeli domestic pressure is mounting for the release of hostages, while Hamas demands withdrawal from Gaza as a precondition for ceasefire. Israeli military actions in Gaza, particularly in Khan Younis, may influence Hamas’ stance. These talks are part of broader efforts to find a peaceful resolution to the conflict.
U.N. Cybercrime Treaty Talks
The United Nations is entering the final phase of negotiations for a new cybercrime treaty. The key issue is the treaty’s scope, with discussions focusing on whether to include only cyber-dependent crimes or expand to cyber-enabled crimes. Authoritarian states favor a broader scope that could encompass online activities of opposition groups. In contrast, Western countries advocate for a narrower focus on crimes like ransomware attacks, fearing misuse of the treaty against political dissent.
Stratfor.com
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