Key events to watch in the week ahead: 6 Feb – 10 Feb 2023

This week’s overview

The risk-on environment has found further validation this week, as the Federal Reserve (Fed)’s recognition of progress in the ‘disinflationary process’ was viewed as the dovish takeaway from the latest Federal Open Market Committee (FOMC) meeting. US big tech earnings provided the next stage of hurdles to overcome, but overall, the higher highs and higher lows in US equity markets since October 2022 seem to reflect the bulls retaking control. The upcoming week will see the US earnings season on a lower gear, while the economic calendar could also take a slight breather from the current busy week. Nevertheless, interest rate decision out of the Reserve Bank of Australia (RBA) and Reserve Bank of India (RBI) are lined up ahead, along with further comments from Fed Chair Jerome Powell.

Here are some of the key events to watch next week:

7 February 2023 (Tuesday): RBA interest rate decision

The wide consensus is for a 25 basis-point (bp) hike in the upcoming meeting (90% probability), effectively bringing the cash rate to 3.35%. Expectations are also suggesting that cash rate from the RBA may peak at the 3.60% level, with another 25 bp hike by April 2023. This came after the recent pull-ahead in Australia’s inflation challenged hopes of a rate pause, with its monthly Consumer Price Index (CPI) in November-December surging to 8.1%. Much focus will be on how the RBA will address the recent inflation surprise. To recall, past policymakers’ views on cooling inflation by the end of last year did not play out as they expected, which could leave future rate decision to be more data-dependent as compared to a committal stance.

The AUD/USD will be key to watch, with the pair hovering just 1.2% away from its seven-month high. Recent bearish crossover on moving average convergence/divergence (MACD) seems to raise the odds of a near-term retracement, but greater conviction for sellers may be a break below the 0.698 level, where dip-buying activities were presented this week.

8 February 2023, 1am SGT (Wednesday): Fed Chair Jerome Powell’s speech

At the latest FOMC meeting, Fed Chair Jerome Powell has attempted to maintain his hawkish stance but markets are finding hints of dovishness in his words. With that, all eyes will be on whether he will want to take the opportunity at the upcoming speech to potentially set things straight. Any no-surprise or sticking to the same script as the FOMC press conference could potentially see equities ride higher, in line with the recent broader trend, while the US dollar could continue to struggle.

For now, the US dollar index remains guided by a falling channel pattern, with a recent support at the 101.30 level giving way in the aftermath of the Fed meeting. The overall downward bias remain intact, with the lower highs and lower lows presented since its September 2022 peak. That may leave the next line of support on watch at the 99.00 level.

10 February 2023 (Friday): China’s inflation rate

Reopening efforts in China towards the end of last year have aided to revive consumer prices in December, with an uptick to 1.8% from previous 1.6%. Further strength in CPI could be expected in January as well, with recent outperformance in China’s Purchasing Managers' Index (PMI) readings providing strong testament for the economic recovery. The People's Bank of China’s (PBoC) decision on its reserve requirement ratio (RRR) will also be released during the week, but could largely be a non-event with an expected no-change. Recent reopening efforts could reduce the need for more supportive policy measures and prompt some wait-and-see.

The Hang Seng Index has retraced from a 50% Fibonacci retracement at the 22,870 level recently, following a bearish MACD divergence and reversion of Relative Strength Index (RSI) to more neutral levels. That places an upward trendline on close watch in the near term, with any downward break potentially putting the 20,000 psychological level back in sight.

10 February 2023 (Friday): University of Michigan US consumer sentiment index (prelim)

Current expectations for the upcoming UoM consumer sentiment index are pointing to a slight uptick to 65.0, from previous 64.9. Nevertheless, this will mark the third consecutive month of improvement in consumer sentiments. Consumers’ inflation expectations will be key to watch as well. Year-ahead inflation expectations have receded for the fourth straight month in January, falling to 3.9% from previous 4.4%. Further moderation in inflation expectations may be on watch to support mounting hopes of a ‘dovish pivot’ by the end of the year.