Week Ahead: Focus Turns to Fed and Jobs Numbers. Last week was another week of records for all United States indices. The big four – Dow, NASDAQ, S&P, and Russel – recorded significant gains and ended the week near their all-time highs. The continued surge is associated with the current results from companies. So far, of all the firms that have reported, 81% of them have beat the analyst forecasts, which is an indication of a strong economy.
From an economic data side, last week’s QoQ GDP data disappointed. The bureau of labor statistics released economic data that showed the economy grew at 2.6% which is lower than the expected 3.0%. The disappointment was a result of increased deficits and an increased inventory drawdown. The deficits happen when countries import more than they export while the drawdown happens when companies don’t resupply inventories.
The GDP data of 2.65 is however not bad for the economy because the number fluctuates often. It is also seasonal and could be affected by several seasonal things.
Last week also, we focused on Davos where the global elite held their annual jamboree. This years’ meeting was important because it came one year after Chinese president made a strong case for globalization. It was now time for Trump to make his case for economic nationalism. In his speech, he talked about the U.S. economy and how well it is doing. What he didn’t mention is that other regions of Asia and Europe are doing good, if not better.
Another major thing last week was on the EV+CB and BoJ to leave rates unchanged.
This week, the focus among investors and traders will be on the Fed. On Tuesday, the FOMC starts its first meeting of the year with the main deliverable expected to come on Wednesday. On this day, the Fed will issue its first interest rate decision.
This meeting comes at a time when inflation is struggling and the dollar is at a yearly low. As shown below, the dollar ended the week at the most oversold region since July last year.
Investors expect the Fed to raise interest rates by about 25 basis points.
Apart from the Fed, the economic calendar shows the week will have major data. On Tuesday, we will receive the consumer confidence data from the consumer bureau and a speech from Governor Carney. On Wednesday, we will get the inflation data from Australia and European Union, and Chinese manufacturing data. Later in the day, we will get ADP’s employment change data, which acts as an indicator of what to expect in Friday’s Non-Farm Payrolls (NFP).
On Thursday, we will receive the manufacturing data from Germany, United States, and the United Kingdom. On Friday, we will receive data construction data from the UK and the employment data from the United States. Most importantly, investors will look for signs of wage growth in the country coming after Trump’s tax cuts.
This will also be a busy week for earnings. Companies like Lockheed Martin, Corning, HDFC Bank, McDonalds, and SAP expected to report.