Our weekly update
Three major central bank policy announcements
In the United States, Gross Domestic Product (GDP) grew more strongly than expected − at an annual rate of 2.9% in the fourth quarter of 2022 − although the overall picture suggests a clear economic deceleration in early 2023. Hopes of a soft landing initially provided support to stock markets, but before last Friday’s closing, US equities fell. Summing up the week between January 20 and January 27, America’s broad S&P 500 equity index gained nearly 2.5% while the Stoxx Europe 600 was up about 0.7% and Sweden’s OMXS30 large cap index was almost unchanged.

The corporate report season continues
It is often hard to elicit positive market reactions during a quarterly report season if share prices have recently gained a lot of ground. Despite this, downwardly adjusted expectations and rising prices have resulted in rather calm stock markets so far at the overall level, although price reactions at the company level have often been relatively strong. This week, several US tech giants will release their results, including Meta, Apple, Alphabet and Amazon. To date, the report season indicates that many companies – led by the tech sector − are taking steps to improve their efficiency, including layoffs. It will thus be especially interesting to see how the biggest US tech companies handle these issues in their reports, and how they will affect market sentiment and global stock markets in general.

Three major interest rate announcements
This evening (February 1) Swedish time, the US Federal Reserve (Fed) will issue an interest rate announcement. There is almost total consensus among analysts that the Fed will raise its key rate by 25 basis points. This would represent a clear slowdown in its hikes, thereby confirming the perception that the US rate hiking cycle is nearing its peak.

Tomorrow (February 2), another heavyweight will make a monetary policy announcement − the European Central Bank (ECB) is expected to raise its deposit rate by 50 bps. The inflation trend, and thus also the rate hiking cycle, in the euro area are lagging those in the US. This is why future ECB rate hikes are quite likely to be both larger and more numerous than Fed rate hikes. In last week’s Market Outlook, we mentioned that during the World Economic Forum meeting in Davos, ECB President Christine Lagarde stated that two 50 bp rate hikes could be expected from the European Central Bank. However, signals from the ECB are difficult to read and there are indications that the bank may be regretting some of its earlier very hawkish signals.

On February 2, the Bank of England (BoE) is also expected to issue its interest rate announcement. Forecasts for the British central bank are divided, but a rather large majority of analysts have predicted a 50 bp hike.

An eventful week
In addition to corporate reports and central bank announcements, this week is so packed with interesting macroeconomic data that it is hard to write about everything. To choose just a few: we will see flash estimates of January inflation in the euro area and the ISM purchasing managers’ indices will provide useful signals about how the American economy is doing, while the US jobs report for January will measure the temperature of the labour market.


Best regards
Emma Brage
Investments
Private Wealth Management & Family Office


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