Pace after the previous week’s storm
We had challenging days last week, and now it is time to see the market reaction. However, we still have many other economic data to watch, including UK GDP and Canadian labor market data. RBA also will have a policy meeting this week, while earnings reports still attract the attention of many investors.
1- Reserve Bank of Australia – Tuesday
RBA also will hold its 2023’s first monetary policy meeting and interest rate decision. Recently published data from the Australian economy were disappointing. The labor market was losing steam, while manufacturing and service activities remained historically subdued. The only good news for the Australian economy was the Chinese reopening. However, since inflation is still high and around 7%, we expect another 25 bps rate hike to 3.35%. If RBA signals another 25 bps rate hike in the next meeting, then Aussie can gain against its crosses; otherwise, only a 25 bps rate hike will hold overall pressure on it for now.
2- US Trade Balance – Tuesday
The US trade balance has been hit for various reasons in recent months. A stronger USD compared to other currencies makes the export price more expensive. In contrast, the economic issues that other countries were involved in have reduced their purchasing power and imports, especially from the US. We expect the US trade balance to be at -$69.1B in the final month of 2022, rising nearly 2% thanks to fewer imports after plummeting 7.5% in November. That must help the USD to gain more.
3- UK GDP – Friday
We are waiting to see if the UK economy fell into a technical recession in the second half of last year. This Friday, we will get the answer with an initial estimate of the fourth quarter of GDP. The consensus forecast is to see the second straight quarterly decline. Given the decline in retail sales reported throughout the quarter, consumer spending will likely remain weak, hurting UK GDP. The only hope is more sales that we had around New Year’s Eve, which we have to wait and see. Expected data would hold the pressure on the sterling.
4- Canadian Labor Market – Friday
Unlike the southern neighbor, the Canadian labor market is not strong enough, and it is expected to see the unemployment rate increase to 5.2% in January, up from 5.0% in December. The expected weakness in the labor market could hint at a potential pause of further tightening from BOC. Canadian central bank’s Governing Council should hold the policy rate at its current level, which means a weaker Loonie in subsequent months.
5- Earnings of the week
Of 230 companies in the S&P 500 that have reported earnings so far, 70.0% reported above analyst expectations. This compares to a long-term average of 66%. Most known companies have already published their report; however, we still have many others to watch, including Walt Disney, Uber, CME Group, and Emerson on Wednesday. PepsiCo, Toyota Motor, Philip Morris, Siemens, S&P Global, Motorola, and PayPal also will report their earnings on Thursday.