Ahead of the game: 3 February 2025
The ASX 200 soared to record levels as global markets absorbed new earnings data and the unveiling of a competitive artificial intelligence model from China.
US stocks face volatility and ASX 200 peaks
United States (US) stock markets experienced a choppy week as traders processed key earnings reports and reacted to China's DeepSeek unveiling a competitive artificial intelligence (AI) model.
Locally, ASX 200 soared to a fresh record high, driven by Wednesday's cooler fourth-quarter (Q4) inflation reading and expectations that the Reserve Bank of Australia (RBA) will soon start a shallow interest rate-cutting cycle.
The week that was: highlights
- In the US, Q4 gross domestic product (GDP) grew by an annualised 2.3%, missing the 2.6% forecast
- Initial jobless claims decreased by 16,000 to 207,000 for the week ending 25 January, well below the expected 220,000
- The Federal Reserve (Fed) kept the Fed funds rate unchanged at 4.25% - 4.50%, as widely expected
- In the European Union, the European Central Bank (ECB) cut its deposit rate by 25 basis points (bp) to 2.75%
- In China (CN), the National Bureau of Statistics (NBS) manufacturing purchasing managers' index (PMI) fell to 49.1 in January from 50.1
- In Australia (AU), headline inflation rose by 0.2% quarter-on-quarter (QoQ), allowing the annual rate to ease to 2.4% from 2.8%
- The RBA's preferred measure of inflation, the trimmed mean, rose by 0.5% QoQ, allowing the annual rate to fall to 3.2% from 3.6%, marking an eighth quarter of lower annual trimmed mean inflation
- In New Zealand (NZ), the Australia and New Zealand Banking Group(ANZ) Business Outlook index slipped to 54.4 in January from 62.3
- Crude oil fell 2.10% this week to $73.09
- Gold hit a fresh record high of $2798
- Bitcoin climbed 2.5% this week to $105,162
- Wall Street's gauge of fear, the volatility index (VIX), rose to 15.83 from 14.84.
Key dates for the week ahead
Australia & New Zealand
- AU: Retail sales (Monday, 3 February at 11.30am AEDT)
- NZ: Employment (Wednesday, 5 February at 8.45am AEDT)
- AU: Trade balance (Thursday, 6 February at 11.30am AEDT)
China & Japan
- CN: Caixin manufacturing PMI (Monday, 3 February at 12.45pm AEDT)
- CN: Caixin services PMI (Wednesday, 5 February at 12.45pm AEDT)
- CN: Consumer price index (CPI) and producer price index (PPI) (Sunday, 9 February at 12.30pm AEDT)
United States
- US: Institute for Supply Management (ISM) manufacturing PMI (Tuesday, 4 February at 2.00am AEDT)
- US: Job Openings and Labor Turnover Survey (JOLTS) job openings (Wednesday, 5 February at 2.00am AEDT)
- US: ISM service PMI (Thursday, 6 February at 2.00am AEDT)
- US: Non-farm payrolls (Saturday, 8 February at 12.30am AEDT)
Europe (EA) & United Kingdom (UK)
- EA: Inflation rate (Monday, 3 February at 9.00pm AEDT)
- UK: Bank of England (BoE) interest rate decision (Thursday, 6 February at 11.00pm AEDT)
Key events for the week ahead
-
AU
Retail sales
Monday, 3 February at 11.30am AEDT
Next week's retail sales is the last key data point ahead of the RBA’s February Board meeting. However, after the release of weaker-than-expected Q4 inflation, it is unlikely to shift the current market thinking that the RBA will cut rates in February.
In November, retail sales in AU increased by 0.8% month-on-month (MoM) after growth of 0.5% in October 2024 and 0.4% in September 2024.
Robert Ewing, Australian Bureau of Statistics (ABS) head of business statistics, said: 'Black Friday sales events proved once again to be a big hit, with widespread discounting and higher spending across all retail industries. All retail industries saw growth: department stores (1.8% vs -0.3% in October), clothing, footwear, and personal accessory retailing (1.6% vs -0.7%), cafes, restaurants, and takeaway food (1.5% vs 0.3%), household goods retailing (0.6% vs 1.6%), food retailing (0.5% vs 0.2%), and other retailing (0.3% vs 1.4%).'
For December, the expectation is for retail sales to increase by 0.5%. The AU interest rate market is pricing in a cumulative 90 bp of RBA rate cuts this year.
AU retail sales monthly turnover chart
-
CN
Caixin PMIs
Monday, 3 February and Wednesday, 5 February at 12.45pm AEDT
China’s economy shows mixed signals. Although the country achieved its 2024 growth target of 'around 5%', this strength largely stems from exports, which could face challenges from potential US trade restrictions. Policy stimulus has boosted retail sales beyond expectations, but the momentum might be short-lived, as seen in several weak recovery attempts over the past year.
Recent official PMI data highlights ongoing economic challenges. The January manufacturing PMI unexpectedly fell into contraction at 49.1, missing the consensus of 50.1. Meanwhile, services activity dropped significantly to 50.2 from 52.2 in December, indicating a marked slowdown.
Looking ahead, the Caixin manufacturing PMI is anticipated to register at 50.2, showing weaker expansion compared to December 2024's 52.2, and reinforcing the weakness evident in the official PMI.
Caixin services and manufacturing PMIs chart
-
UK
BoE interest rate decision
Thursday, 6 February at 11.00pm AEDT
At its last meeting in December, the Monetary Policy Committee (MPC) voted by a majority of 6:3 to maintain the Official Bank Rate at 4.75%. Three members preferred to reduce rates by 0.25% to 4.5%. The decision was in line with expectations after twelve-month CPI inflation increased to 2.6% in November from 1.7% in September.
In the lead-up to next week’s BoE meeting, the annual headline inflation rate in the UK unexpectedly edged lower to 2.5% in December 2024 from 2.6% in November, below forecasts of 2.6%. More importantly, the annual core inflation rate decreased to 3.2% in December from 3.5% in the previous month, marking the lowest reading since September and below market estimates of 3.4%.
Elsewhere, the unemployment rate rose to 4.4% from September to November 2024, compared to market estimates and 4.3% in the previous two periods. This marks the highest level since the three months ending in May.
These factors, combined with tepid growth, are expected to see the BoE cut rates next week by 25 bp to 4.50%. This would be the BoE’s third rate cut in the easing cycle, which began in August 2024. The BoE is expected to deliver a total of 70 bp of rate cuts in 2025.
BoE Official Bank Rate chart
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US
Non-farm payrolls
Saturday, 8 February at 12.30am AEDT
December's non-farm payrolls report was robust. The US economy added 256,000 jobs following a downwardly revised 212,000 in November, beating market forecasts of 160,000. The unemployment rate eased to 4.1% in December from 4.2% in the previous month, below market expectations of 4.2%.
After rising steadily in the first quarter (Q1) of 2024, the US unemployment rate has been either 4.1% or 4.2% for the past seven months, prompting the Fed to note this week, 'The unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid.'
The preliminary expectation for January is that the US economy will add 205,000 jobs and that the unemployment rate will remain at 4.1%, which would help reinforce the idea that the Fed is on hold until mid-year.
US unemployment rate chart
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CN
CPI and PPI
Sunday, 9 February at 12.30pm AEDT
China's consumer prices remained subdued in December 2024, rising just 0.1% YoY, highlighting persistent deflation risks as domestic demand struggles despite recent policy stimulus. Producer prices have been in contraction since October 2022, affected by overcapacity. However, core consumer prices, excluding volatile food and fuel costs, have improved for three consecutive months.
Looking forward, China’s upcoming CPI is expected to stay at 0.1% YoY, while factory-gate inflation is forecast to slightly improve to -2.1% from -2.3%. This may indicate some stabilisation, but ongoing subdued price pressures are likely to reinforce expectations for further rate cuts and reserve requirement ratio (RRR) reductions to support the economy in the coming months.
CN CPI and PPI chart
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US
Q4 2024 earnings season
The US Q4 2024 earnings season continues with reports set to drop next week from companies including Palantir Technologies, Alphabet, MicroStrategy, and Amazon.
US Q4 2024 earnings chart
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