Key events to watch in the week ahead: 22 - 28 January 2024

This week’s overview

Economic data releases this week have called for some recalibration in Federal Reserve (Fed)’s rate expectations, as the odds of a 25 basis point (bp) cut in March are pared from 80% a week ago to the current 53%. Nevertheless, major US indices held firm, with the Nasdaq 100 index pushing to yet another record high as big tech companies regained traction on a positive artificial intelligence (AI) demand outlook.

US Treasury yields were broadly higher, with the US 10-year yields reclaiming its key 4% level, bringing the US dollar back to retest its 200-day moving average (MA). Gold prices struggled as a result, touching a one-month low but still managed to defend its psychological US$2,000 level so far.

As we head into the new week, here are five things on our radar.

US earnings season: Johnson & Johnson, Netflix, Tesla, Intel, Visa

The US earnings season will switch to higher gear next week, with investors placing their spotlight on fourth-quarter (Q4) results from Netflix and Tesla to provide an early glimpse into big tech earnings.

Tesla will also be the first out of the "Magnificent seven" stocks to release its earnings, and with the group’s dominant market performance in 2023, Tesla’s results may set the stage for whether the group can continue to keep up with its momentum into 2024 as well.

22 January 2024 (Monday, 9.15am SGT): China’s one-year and five-year loan prime rate (LPR)

The prevailing trend of weak economic data from China into 2024 has raised calls for more to be done by authorities to stabilise growth conditions, as tepid domestic demand, soft labour conditions and a property market slump remain as key economic headwinds to overcome.

That said, China’s central bank defied market expectations earlier this week by keeping its medium-term policy rate (MLF) unchanged at 2.5%, underscoring its limitation for monetary easing due to a weakening currency.

With the MLF rate largely seen as a precursor to adjustments in the LPR, consensus is for its one-year and five-year LPR to be kept unchanged at 3.45% and 4.2% respectively as well. However, hopes still remain high for further rate cuts later this year.

23 January 2024 (Tuesday, 11am SGT): Bank of Japan (BoJ)’s interest rate decision

At the upcoming meeting, broad expectations are for the BoJ to maintain its ultra-loose monetary settings, which include keeping its short-term interest rate target unchanged at -0.1% and for the 10-year bond yield around 0%. This comes off the back of subdued wage growth in November, further easing in inflation and a devastating earthquake on New Year's Day, which drove some near-term economic uncertainty.

Over the past year, the BoJ has been laying the groundwork for an eventual policy pivot, but communications around the timeline have been muddled, which will leave markets scouring the BoJ Governor’s comments for any hints at the upcoming meeting. Broad market expectations are for the BoJ to end negative rates only in 2Q 2024.

Eyes will also be on the fresh economic projections from the central bank. Any upward revisions in inflation forecasts for FY2024 and FY2025, though an unlikely case, could be a signal for markets for a quicker policy shift.

25 January 2024 (Thursday, 9.15pm SGT): European Central Bank (ECB)’s interest rate decision

At its last meeting in December, the ECB kept its deposit rate on hold at 4.00%, as widely expected. The ECB noted that with interest rates at this level, it will make a "substantial contribution" to returning inflation to its 2% goal in 2025. Inflation data for December showed core inflation cooling to 3.4%, the lowest since March 2022, and headline inflation stayed below 3%.

While this shows that higher interest rates are winning the battle against high inflation, tighter monetary policy also impacts growth and activity data. Reflecting concerns that the European economy, led by Germany, is heading into recession in 2024, the European rates market is pricing in 135 bp of rate cuts for 2024.

This week, ECB President Lagarde even said that the aggressive pricing of rate cuts is not “helping our fight against inflation”. The ECB is expected to keep rates on hold in January, with a first rate cut unlikely until April at the earliest.

26 January 2024 (Friday, 9.30pm SGT): US core Personal Consumption Expenditures (PCE) price index

The Fed’s preferred measure of inflation rose by 3.2% year-on-year (YoY) in November, below market expectations of 3.3% and easing from the 3.5% in October. On a six-month annualised basis, core PCE increased by 1.9%, indicating that if the current pace of disinflation continues, the Fed will reach its 2% target in the months ahead.

This month, the market is looking for core PCE inflation to fall to 3% YoY, while the headline PCE rate is expected to remain stable at 2.6% YoY. Should the market consensus forecast be met, it will support expectations that the Fed will cut rates up to six times in 2024.