This week brings the return of major central bank meetings, with both the Bank of Canada and the FOMC meetings on Wednesday. There has been a lot of talk about rate hikes lately, but is either central bank ready to pull the trigger? Politics continue to be a hot issue in the UK as Boris Johnson defends his position as Prime Minister. Over in Eastern Europe, tensions continue to mount as Russia builds up forces along the Ukraine border. Will Russia invade Ukraine this week? Also, a big selloff in stock indices last week culminated with poor guidance from Netflix. Microsoft, Tesla, and Apple, among others, report this week. Will their guidance result in a repeat of last week’s sell off in stocks? There are plenty of catalysts for volatility this week!
Bank of Canada
The Bank of Canada meets on Wednesday this week and will decide if it should raise interest rates from pandemic lows at 0.25%. Expectations of a rate hike are mixed, with markets pricing in nearly a 60% chance of a rate hike. Since the last meeting on December 8th, 2021, inflation has risen marginally from 4.7% to 4.8%, however this is the highest level since September 1991. Jobs have been plentiful since the last meeting, with December’s report doubling expectations at +54,000 after November’s stellar print of +153,700. There doesn’t appear to be any worries on the jobs front! This will be a close call and could cause volatility in the Canadian Dollar pairs.
The US Federal Open Market Committee (FOMC) also meets on Wednesday. However, unlike the BOC, markets are only pricing in a 5% chance of a rate hike at this meeting. Since the last meeting in December, inflation reached the 7% mark, the highest level in nearly 40 years. Fed members have been marched out one after another talking about how the first rate hike will probably be in March as they wait for the bond purchase program to end. Keep in mind that although the Fed has indicated that the requirements for maximum employment have been met, the average of the last two Non-Farm payroll reports has only been +224,000. Watch for comments regarding the March meeting, particularly from Fed Chairman Powell in the press conference. These comments could cause volatility in markets across the board.
UK Prime Minister Boris Johnson is still in hot water. Although coronavirus restrictions under Plan B have been restricted, Johnson is still facing an onslaught of attacks from both benchbackers and the general public over “partygate”. First, Johnson was accused by ex-advisor Dominic Cummings of lying to Parliament regarding his knowledge of the party. Now, Senior Tory politician William Bragg has alleged that Johnson and his staff intimidated and blackmailed those who lack confidence in Johnson by encouraging the publication of embarrassing stories about them to the press. Second permanent secretary at the Cabinet Office, Sue Gray, is investigating the “partygate” scandal and a report is forthcoming. If the report shows Johnson broke Covid restrictions, will this be the end for him? What will happen to the Pound? And by the way, Brexit talks resume this week over the Northern Ireland protocol. Be on guard for headlines this week.
Will Russia invade Ukraine this week? It’s a very fluid situation as both sides continue to build up forces along the border. Russia says they will not invade, however with 100,000 soldiers on the border, the West thinks otherwise. In the latest attempt to end the conflict, US Secretary of State Anthony Blinken met with Russian counterpart Sergey Lavrov in Geneva for talks. The result: an agreement to keep talking. Larvrov said on Friday that Russia is currently waiting for an official answer to their security demands from Blinken this week. Again, be on the lookout for headlines this week!
Oh Boy! Netflix did it last week-revised down guidance for the number of new net-subscribers for Q1 to 2.5 million. Estimates from analysts were for 5.8 million. Was Netflix guidance the beginning of the end for covid-era “stay at home” stocks? This week we’ll find out more as Microsoft and Apple both report earnings. In addition, IBM, Tesla, Visa and Mastercard will also report. A list of major companies that could affect markets with their earnings reports are as follows: IBM, HAL, AXP, LMT, GE, VZ, MSFT, TXN, JNJ, T, BA, TSLA, INTC, BX, AAPL, MCD, MA, V, CAT, CVX
With the FOMC and Bank of Canada meetings this week, economic data takes a back seat. However, there are still some major data points that could move markets, including preliminary global manufacturing and services PMIs, CPI from both Australia and New Zealand, and the first look at US Q4 GDP and Core PCE. Other important economic data is as follows:
- Global Manufacturing and Services Flash PMIs
- Mexico:Mid-Month Inflation Rate (JAN)
- US:Chicago Fed National Activity Index (DEC)
- Australia: NAB Business Confidence (DEC)
- Australia: CPI (Q4)
- Germany: Ifo Business Climate (JAN)
- US: S&P/Case-Shiller Home Price (NOV)
- US: CB Consumer Confidence (JAN)
- Japan: BOJ Summary of Opinions
- New Zealand: Trade Balance (DEC)
- Canada: BOC Interest Rate Decision
- US: New Home Sales (DEC)
- US: Fed Interest Rate Decision
- Crude Inventories
- New Zealand: CPI (Q4)
- Germany: Gfk Consumer Confidence (FEB)
- UK: CBI Distributive Trades (JAN)
- US: Durable Goods Orders (DEC)
- US: GDP Growth Rate Adv (Q4)
- US: PCE Prices Adv (Q4)
- US: Pending Home Sales (DEC)
- New Zealand: ANZ Roy Morgan Consumer Confidence (JAN)
- Japan: Tokyo CPI (JAN)
- EU: Economic Sentiment (JAN)
- EU: Consumer Inflation Expectations (JAN)
- US: Personal Income (DEC)
- US: Personal Spending (DEC)
- US: PCE Price Index (DEC)
- US: Employment Cost Index (Q4)
- US: Michigan Consumer Sentiment Final (JAN)
Chart of the Week: Weekly Netflix (NFLX)
Source: Tradingview, Stone X
Netflix made new all-time highs during the week of November 15th, 2021 at 700.99. In two short months since then, the stock has managed to give back half of its gains from the lows of 2016 to the recent highs, crashing through the 200 Week Moving Average at 422.63 and reaching a of 379.99 last week. The weekly RSI moved from overbought in November 2021 to oversold, an indication that a bounce may be ahead. On the weekly timeframe, first resistance is at the 200 Week Moving Average. Above there are a number of horizontal resistance areas including 423.21 and 458.60. First support is at last week’s low of 379.99. Below there, price can fall to the 61.8% Fibonacci extension of the previously mentioned timeframe at 317.19, then horizontal support at 290.25.
What will move the markets this week? There plenty to choose from! With major central bank meetings returning to the mix this week, watch for rate hikes or clues as to when the first rate hikes will come. Also be on the lookout for headlines from the UK regarding Boris Johnson’s future and from Russia regarding an invasion into the Ukraine. And don’t forget about earnings! Pay attention to the guidance.
Have a great weekend!