Week in Review: Central Banks and Davos Dominate . This week, the focus among the financial community was on the United States corporate earnings, Monetary Policy decisions from Japan and ECB, and the ongoing meeting in Davos, Switzerland.
This week, we received major earnings from top companies like Caterpillar, 3M, Starbucks, AbbVie, Haliburton, and Netflix. Among the top movers were Netflix, which reported a surge in new subscribers and Caterpillar, which reported exciting results, helped by the growth in global economy. The companies that disappointed were Starbucks, which beat analysts forecast but missed on margins, and General Electric, which reported weak earnings. The SEC also reported that it is investigating the company.
Monetary Policy Decisions
This week, Bank of Japan (BoJ) was the first to leave interest rates unchanged at negative 0.1 percent. They also left the ten year yield target at 0%. All this was in line with the expectations from analysts and financial watchers. This decision had a unanimous vote of 8-1.
The most important decision of the day was on the bank’s future guidance. In this, the bank said that it would continue with its quantitative easing program as long as possible to achieve the inflation target of 2 percent. On inflation, the bank expected the cote consumer prices to go up by 1.4 percent this year and 1.8% in 2019.
This week, the yen rose against the dollar by almost 1.50%.
On Thursday, the ECB completed its two-day meeting and left interest rates and deposit facility rate steady at 0 percent and negative 1.4 percent respectively. In the meeting and subsequent press conference, Draghi reaffirmed his commitment to continue with the quantitative easing program until or beyond September this year. This news pushed the euro to a three year high against the dollar.
Today, the Census Bureau released the core durable goods data which rose against 0.6% against the expected 0.5% while the Bureau of Economic Analysis released the QoQ GDP growth of 2.6% against the expected 3.0%.
In addition, today, we received inflation data from Canada which showed inflation slowed to -0.5%.
This week, crude oil continued the upward momentum with the main benchmarks reaching a three year high. As of this writing, the WTI is trading at $65.61 while Brent is trading at $70.51. Because these are significant psychological levels, I expect the commodity may try to establish a ceiling. If the data released next week shows increased demand, The momentum may increase. An alternative scenario is where the commodity retraces significantly before starting upward movements.
The annual meeting of who is who in the society happened this week with the key topics being about technology, globalization, and inclusiveness. Several headlines came out of the meeting including the statement by George Soros that Facebook and Twitter were damaging creativity, the statement by Steve Mnuchin who argued for a weaker dollar, and Trump’s statement in favor of a strong dollar.
In the coming week, investors and traders will focus on corporate earnings and the Fed. On earnings, we will get results from companies like Lockheed Martin, PZ Cussons, McDonalds, Pfizer, Electronic Arts, SAP, and Banco Santander among others.
On Tuesday, we will get the Consumer Confidence data. On Wednesday, we will get Australia’s inflation data, Germany’s PMI, the Fed statement, and the Chinese manufacturing PMI. On Thursday, we will get manufacturing data from China, Germany and the UK. On Friday, we will get the jobs data from the United States.