Following a brief bout of FOMC-inspired volatility mid-week, US equity markets returned to form, buoyed by economic data suggesting a potential soft landing for the US economy and a resurgence in Mega Tech stocks.

In Australia, the ASX 200 reached a new record high of 7,682.3, bolstered by Q4 inflation data that was cooler than anticipated. This has solidified expectations for RBA rate cuts in the latter half of 2024. The ASX 200's previous peak of 7,632.8, set nearly three years ago in August 2021, came as global share markets rallied in response to the unprecedented wave of fiscal and monetary stimulus deployed to counter the effects of the Covid pandemic.

• JOLTs job openings hit a three-month high at 9.06 million, surpassing the 8.75 million forecast
• Initial jobless claims jumped to 224k, the highest since mid-November and significantly over the 207.75k four-week average
• ISM manufacturing PMI reached 49.1 in January, its peak since October 2022, nearing expansion after 15 months below 50
• The BoE held rates at 5.25%, signaling a dovish shift by removing tightening bias and lowering inflation outlook
• Euro Area growth flatlined at 0.0% in Q4 2023, following a slight decline in the prior quarter
• Caixin manufacturing PMI in China met expectations at 50.8 in January
• Australia's Q4 headline inflation increased by 0.6%, yielding a 4.1% annual rate, below the previous 5.4%
• The RBA's trimmed mean inflation slowed to 4.2% YoY from 5.2%, with a 0.8% QoQ rise
• Australian December retail sales dropped by 2.7%, a reversal from November's 1.6% increase
• Crude oil dropped 5.37% to $73.82 amid peace talks in Gaza
• Gold climbed 1.80% to $2054, supported by a weaker US dollar and lower yields
• The VIX index nudged up to 13.87, indicating low market fear levels.

• AU: RBA interest rate decision (Tuesday, February 6th at 2:30 pm AEDT)
• NZ: Employment (Wednesday, February 7th at 8:45 am AEDT)
• AU: RBA Bullock Speech (Friday, February 9th at 11:30 am AEDT)

• CN: Caixin Services PMI (Monday, February 5th at 12:45 pm AEDT)
• CN: CPI + PPI (Thursday, February 8th at 12:30 pm AEDT)

• US: ISM Service PMI (Tuesday, February 6th at 4:00 pm AEDT)

• GE: Balance of Trade (Monday, February 5th at 8:00 pm AEDT)
• GE: Factory Orders (Tuesday, February 6th at 8:00 pm AEDT)

• US

ISM Services PMI

Date: Tuesday, 6 February at 2am AEDT

In December, the ISM Services PMI unexpectedly declined to 50.4, marking the lowest reading in seven months and falling below consensus expectations of 52.6. There were notable decreases across the sub-indices, including New Orders, Employment, and Inventories. This month, the ISM Services PMI is anticipated to recover to 52.2, extending the streak of better-than-expected data since the beginning of 2024. This rebound will also underscore the FOMC's recent statement that, although rate cuts are anticipated, they are not immediately forthcoming.

US ISM Services chart

• AU

RBA interest rate decision

Date: Tuesday, 6 February at 2.30pm AEDT

At its Board Meeting in December, the Reserve Bank of Australia (RBA) maintained its official cash rate at 4.35%, aligning with widespread expectations following a series of cooler-than-anticipated data on house prices, retail sales, and inflation.

The RBA continued to express a tightening bias, repeating the phrasing from the November statement, which was toned down compared to previous months.

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks."

The RBA is set to conduct its first Board Meeting of the year on Tuesday, February 6th, at 2:30 pm. Leading up to this meeting, data has again underperformed expectations.

The Consumer Price Index (CPI) increased by 0.6% in the December Quarter (Q4) for an annual inflation rate of 4.1% YoY, significantly beneath the 5.4% figure reported in the September quarter. The RBA's preferred inflation gauge, the trimmed mean, saw a quarterly rise of 0.8%, bringing the annual rate down to 4.2% YoY from 5.2% in September. Retail sales for December, falling by 2.7%, were considerably weaker than the anticipated -1.7%.

This prolonged period of subdued data validates the impact of the RBA's thirteen rate hikes from May 2022 to November 23rd and supports the expectation for the RBA to maintain the cash rate at 4.35% in February. While it may be premature for the RBA to make a dovish shift, two rate cuts are anticipated in the latter half of 2024, potentially reducing the cash rate to 3.85%.

RBA official cash rate chart

• CN

China CPI

Date: Thursday, 8 February at 12.30pm AEDT

China's CPI decreased by 0.3% YoY in December, marking its third consecutive month of declines. This drop was slightly less than the expected 0.4% and showed a modest improvement from November's decrease of 0.5%.

Despite this, with deflation deeply rooted in the Chinese economy, there's increased pressure on Chinese policymakers to bolster confidence in the world's second-largest economy.

Since mid-last year, Chinese authorities have implemented a series of measures to stabilise growth. However, the extent of policy easing has been cautious and incremental, falling short of expectations and contributing to the Chinese stock market trading near five-year lows.

In January, inflation is anticipated to decrease by 0.5% YoY, emphasising the urgency for Chinese authorities to introduce more significant stimulus efforts to curb the advancing deflationary spiral.

China’s CPI 2024 chart

US Q4 earnings season

US Q4 earnings season continues this week with reports scheduled from companies including McDonald's, Caterpillar, Alibaba, Walt Disney Co., Uber, Paypal and Pepsi Co.