Key events to watch in the week ahead: 8 - 14 January 2023

This week’s overview

The first week of the new year kickstarted with global equities on the backfoot, as risk sentiments unwind from its extreme bullish state, following a bounce in US Treasury yields and a firmer US dollar. Given that dovish rate expectations have been one of the key catalyst driving the risk rally towards the end of 2023, all eyes will be on upcoming economic data to clarify if markets have gotten ahead of themselves.

From the US interest rate futures, six rate cuts for 2024 are the current market consensus, with the first cut priced to be as early as March 2024. However, that has not been what the Federal Reserve (Fed) has guided in its December meeting, with market participants hoping that upcoming US inflation and jobs data may be able to sway policymakers’ rate views.

Heading into the new week, here are four things on our radar.

US earnings season: Major US banks

As per tradition, the 4Q 2023 earnings parade will kick off with results from major US banks, starting next Friday (12 January 2024) with JPMorgan, Citigroup, Wells Fargo and Bank of America leading the pack.

For the upcoming earnings season, the estimated earnings growth rate for the S&P 500 is 2.4% year-on-year, which will mark the second straight quarter of earnings growth for the index.

10 January 2023 (Wednesday, 8.30am SGT): Australia’s consumer price index (CPI)

The Reserve Bank of Australia (RBA) has extended its rate hold in December, following a string of cooler-than-expected data across house prices, retail sales, and inflation. Market participants are now looking for two 25 basis point (bp) rate cuts in 2024, with the first cut priced as early as June.

With that, the upcoming inflation data will play an important role in moving the dial around market rate expectations, where further easing in pricing pressures will be warranted to support dovish views.

In October, the monthly CPI indicator eased to 4.9% YoY, slowing from 5.6% in September and below forecasts for 5.2%. Annual trimmed mean inflation was 5.3% in October, easing from 5.4% in September.

For November, the consensus expectation is for the monthly CPI indicator to fall to 4.7% YoY from 4.9%. Should the trimmed mean fall below 5%, it would confirm the rates market is on the right track, looking for rate cuts in 2024.

11 January 2023 (Thursday, 9.30pm SGT): US CPI

Markets have raced ahead of the Fed in pricing for aggressive rate cuts through 2024, with interest rate futures currently leaning towards six rate cuts this year. This is a significantly more dovish view that what US policymakers have guided for, with the Fed’s December dot plot pointing to ‘only’ three quarter-point cuts by the end of 2024.

With that, further inflation progress out of the US will be on watch to support the argument that pricing pressures are coming under control and to offer room for policymakers to recalibrate their rate-cut views.

Current expectations are for US core CPI to register a 3.8% year-on-year growth, down from the 4.0% in November 2023. Headline inflation is expected to tick higher to 3.3%, up from the 3.1% in November 2023. Month-on-month, both headline and core inflation is expected to increase 0.2%.

12 January 2023 (Friday, 9.30am SGT): China’s CPI

China’s deflation situation has worsened in November, with consumer prices falling 0.5% from the previous year, which is its steepest pace in three years. Likewise, its factory-gate deflation has been deepening for the second straight month as well, falling 3.0% year-on-year in November from the 2.6% decline in October.

Overall, declining prices continue to reflect weak domestic demand in the world’s second largest economy, as soft labour conditions and a property market slump keeps consumer consumption and confidence at bay. With China’s central bank ramping up liquidity injection to aid growth, alongside supportive measures for the property sector, market participants remain on the lookout for any sustained turnaround in economic conditions.

Ahead, expectations are for China’s December consumer prices to remain in contraction territory at -0.3% year-on-year, while producer prices are expected to come in at -2.7% year-on-year.

12 January 2023 (Friday, 3pm SGT): UK gross domestic product (GDP)

The British economy contracted 0.3% in October, weighed on by wet weather and elevated interest rates. The soft number ended a run of slightly better than expected GDP numbers and saw the UK interest rate market pricing for six 25 bp rate cuts in 2024.

The market is expecting a modest gain of 0.1% in November. However, if another negative print is viewed, it would increase the chances that the UK economy will enter a recession (two consecutive quarters of contraction) in 2024, for the first time since Covid in 2020.