It was another volatile week for global markets.
But there is a glimmer of hope for investors in the week ahead after ECB president Mario Draghi’s promise of more easing appeared to circuit break the acute pessimism that engulfed markets mid-week. By the end of trade Friday, the Dow had leapt 4.2% from its low to close 16,093 while Nymex crude was a spectacular 22.9% off its low to close the week at $32.19.
Locally, the ASX closed Friday 2.3% off its low for the week and the ASX March SPI 200 futures contract rose another 1.1%, 55 points on Friday night. Likewise, the Australian dollar reclaimed 70 cents during the week — a 2.6% rally from the week’s low — as commodity currencies, and commodities, more broadly rallied as investor risk appetite improved.
After such a volatile start to the year, the outlook remains clouded. Investors will still be worried about the weeks and months ahead. This week looks likely to start off on a more positive tone but can it last?
- How long can the bounce last? George Soros said last week in Davos that “you could have a bounce here (in stocks) but this is not a good entry point”. His warning is a reflection that many experienced investors, like the CEO of the world’s largest investor, Larry Fink from Blackrock, think that markets need to go lower before a sustainable bottom is in for stocks and markets more broadly. Fink told CNBC last week that “there is a need for blood in the street”. But let’s enjoy the bounce while it lasts.
- China is still front and centre of investors concerns and there is a worrying shift in the way the most powerful people in the world are talking about China. Over the past few years at Davos, thoughts on China have been split between the bulls, who think China’s rise to economic and global power is inevitable, and the bears, who think China can’t make its economic transition without suffering incredible shocks.
But now, the question has become more nuanced. Global leaders at Davos point to specific, crucial issues that need to be handled as soon as possible. Some don’t see them being handled at all. And there are some who think it’s too late.
Economic Calendar – courtesy NAB Market Economics
- NAB business conditions Monday and CPI Wednesday the highlights. Another low inflation print opens the monetary easing door further should the economy lose recent momentum. Skilled vacancies (Wednesday), Q4 export and import prices (Thursday) and PPI and RBA credit (Friday) also due. Note Australia has a public holiday on Tuesday.
- NAB business survey – The above average business conditions (along with solid labour market conditions) have been front and center of the RBA’s more recent positive assessment of the domestic economy. Consequently Monday’s NAB business survey will be carefully watched and markets should remain sensitive to the business conditions series out of the survey which at November was well above average at +10. The fieldwork of the survey was largely conducted in the week to 15 January. As is custom, we will not provide any commentary ahead of the release.
- Australian CPI the highlight – Headline CPI is expected to be a low +0.1% q/q and +1.4% y/y. Underlying inflation is also expected to be weak at +0.4% q/q and +2.0% y/y.
This subdued headline outcome is expected to be driven by large falls in petrol prices (-6.2% q/q) and fruit prices (-7.8% q/q). Underlying inflationary pressures also remain subdued with rental growth slowing sharply from the apartment construction boom, strong retail competition amongst supermarkets and consumer electronics, while wages growth remains very low. That said, the weakness in prices does not seem especially demand driven or reflective of a weak economy.
NZ: Thursday’s RBNZ the highlight, with the market interested in the bank’s reaction to continuing low inflation. Data includes PSI Services, Crown accounts, merchandise trade, building consents and credit aggregates. Wellington holiday on Monday.
China: Very light with industrial profits the pick.
US: FOMC on Thursday and GDP Friday the highlights. Also house prices, two consumer confidence updates, and durable goods orders.
- FOMC meeting – While the market has been fixated on equity market volatility and oil prices, the focus this week returns to Fed watching with the FOMC meeting announcement at 6 AM Thursday morning and what the statement might reveal about policy intentions and the US economic outlook. The market is not pricing in any prospect of follow-up rate rise from the Fed at this meeting but focusing more on the 16 March meeting with the probability of a hike as of today priced as a 22% chance.
- US Q4 GDP – The first estimate of Q4 US GDP with the consensus and the Atlanta Fed’s real time GDPNow estimate tilted for a 0.7% headline print, down from 2% in Q3.
Japan: BOJ meeting Friday along with the monthly CPI that day the main focus points. Near term BoJ inflation forecast downgrades in prospect.
Euro: Confidence surveys, money supply and CPI.
UK: Thursday’s GDP the highlight.
Canada:End week monthly GDP, industrial and raw material product prices.