Forex Markets Update: 22 Jan 2024

CURRENCIES:

Equities Forecast:

• US equities, including the S&P 500 and Dow Jones, reach fresh all-time highs, propelled by a robust performance in big tech stocks.
• The ongoing Q4 earnings season, especially results from the ‘Magnificent Seven’ companies, is anticipated to further boost US indices.
• Notably, Microsoft alone holds a significant 7.29% weighting in the S&P 500 index.

US Dollar Performance:

• The US dollar initiates the year with strength, attributed to Federal Reserve Members countering overly optimistic interest rate cut expectations.
• US Treasury yields support the USD against various currencies.
• Precious metals, particularly gold, face pressure as they test the $2,000/oz. level.

Upcoming Events and Releases:

• A multitude of Q4 US earnings releases is scheduled for the upcoming week.
• Key economic events include the closely monitored Bank of Japan Quarterly Outlook Report, significant given elevated USD/JPY levels.
• Thursday brings the European Central Bank (ECB) policy decision, while Friday features the US core PCE release, positioning them as the week’s main attractions.

Monday

• Economic data: Leading Index, December (-0.3%, expected, -0.5% prior)
• Earnings: United Airlines, Logitech, Zions Bancorporation Top of Form

STOCK MARKET:

Market Highlights:

• US equities achieve new record highs with S&P 500, Dow Jones, and Nasdaq Composite in positive territory for January.
• Consumer sentiment data from the University of Michigan boosts positive vibes as consumers express confidence in the economy.

Corporate Earnings:

• Tech results take center stage with Netflix (NFLX) earnings on Tuesday and Tesla (TSLA) on Wednesday.
• Other notable reports include Johnson and Johnson (JNJ), United Airlines (UAL), Verizon (VZ), and AT&T (ATT).
• Overall, one of the busiest weeks for quarterly reports on Wall Street.

Economic Data:

• First reading of Q4 economic growth expected on Thursday.
• Release of the Personal Consumer Expenditures (PCE) Index, the Fed’s preferred inflation gauge, scheduled for Friday.

Economic Growth Outlook:

• Resilient data indicates a potential 2% annualized growth in the US economy for Q4.
• Oxford Economics expresses confidence in the ongoing economic expansion, citing a strong labor market, deceleration in inflation, and looser financial conditions.

Inflation and Rate Cut Speculations:

• Key debate centers on when the Federal Reserve will cut interest rates.
• Investors shift from an 81% chance of a March rate cut to 49%.
• Goldman Sachs chief economist anticipates a March rate cut, driven by a decline in inflation to the target of 2%.

Upcoming Events:

• Federal Reserve in blackout period, focusing attention on earnings as a key driver of stock market sentiment.
• Technology earnings, particularly from large-cap companies, may influence short-term market direction.
• Focus on Netflix demand for new advertising tier and Tesla’s margins, with CEO Elon Musk’s comments under scrutiny.
• Fourth quarter earnings show a weak start, but the narrative is expected to shift to Technology and Communication Services, where growth is anticipated.

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