Weekly Economic & Financial Commentary: Almost Everything Coming Up Roses

Data released this week garnered further optimism that the economy can power through the Federal Reserve's efforts to corral inflation—an endeavor the Fed could increasingly be construed as achieving. Economic activity ended the year on better footing than expected, and inflation continued its deceleration.

The Weekly Bottom Line: Feds, BoC Steal This Show This Week

The even bigger news this week for financial markets was the Bank of Canada's interest rate decision. There are a handful of important takeaways. First, the Bank of Canada left their policy rate on hold, as expected. Second, their inflation and economic growth forecasts were little changed from the prior report.

Forex and Cryptocurrencies Forecast

The two most significant events last week occurred on Thursday, January 25. On this day, the European Central Bank (ECB) held a meeting, and preliminary GDP data for the US for Q4 2023 was published.

Fed, Bank of England and Riksbank Policy Meetings This Week

The main event this week is the FOMC meeting on Wednesday. We expected the Fed to hold policy rates unchanged at this week's meeting but deliver its first interest rate cut of 25bp at the March meeting. Thursday, both the Bank of England and the Swedish Riksbank announce their rate decision, where we expect both to keep policy rates unchanged.

Rising Oil About to Become An Issue

US crude jumped past the $79b level this morning on escalating tensions in the Red Sea. The European and American futures are slightly in the negative at the time of writing, and stocks in Hong Kong and China were better bid on Monday as China imposed ban on short sellers, but the gains remained short-lived after a HK court ordered Evergrande’s liquidation. Globally, we see a limited risk appetite at the start of a week packed with economic data, central bank decisions and corporate earnings.

Oil Prices Spiked to Their Highest Levels Since Early November

Oil prices spiked to their highest levels since early November 2023 this morning on reports that three US service members were killed and at least 34 were injured in an Iran-backed militia’s drone strike on a base in northeast Jordan. It marks another escalation in region apart from the Hamas-Israeli conflict in Gaza and the Houthi-backed attacks in the Red Sea. Brent crude currently trades around $84/b, coming from $79/b only a week ago.

Swiss Franc Recovering, But Will SNB Shift Policy?

The Swiss National Bank isn’t shy about intervening on the currency markets, as it views intervention as an important tool to keep the Swiss franc competitive for export purposes. The central bank purchased Swiss francs during 2023 in order to boost its value and dampen inflation, which rose above the SNB’s 0%-2% target range.

Crypto Has Retreated from Lows, But No Rush for Growth

Crypto market capitalisation at around $1.62 trillion is less than 1% higher than it was seven days ago, thanks to a growth spurt on Friday. Bitcoin has added 3% in the same period and continues to be the driving force behind crypto volatility. The sentiment is gradually returning to greed territory, taking the corresponding index to 55 after lows of 48 in the middle of last week.

AUD/USD Eyes Retail Sales

The Australian dollar is in positive territory on Monday after an uneventful week. In the European session, AUD/USD is trading at 0.6603, up o.41%.

Sunset Market Commentary

Looking at the comments post last week’s ECB meeting, it probably will take some diplomacy for ECB chair Lagarde to reach a consensus on the timing of a first rate cut. Of course, Lagarde’s assessment on Thursday that the ECB is data driven and not calendar driven, wasn’t the best way to reinforce/clarify the message from Davos that it probably will take until summer for the ECB to see the conditions being fulfilled for first rate cut.