Week of 9 february

Market volatility continued this week amid a tech selloff driven by SaaS and rising AI CapEx fears, sending the Nasdaq deep in the red, while the ECB and BOE kept rates unchanged as expected. Gold fell to $4,500 early Monday, recovered to over $5,000 by midweek, and then fell back to around $4,900 by Friday.

In the week ahead, markets will likely focus on US data with the release of (delayed) NFP and CPI figures, with UK Q4 GDP also on the docket. Right at the start of the week on Sunday night, all eyes will turn to the snap elections in Japan.

Week in Review

The metals rout continued on Monday with a historic drop in silver prices and gold falling below $4,500 per ounce after CME raised margin requirements due to high volatility. Industrial metals like copper were also lower.

Markets remained in flux during the week, with wild swings in precious metals amid retail trader flows and a sell-off in tech stocks amid investor concern that AI would disrupt the software-as-a-service (SaaS) market. The losses were compounded on Thursday after Amazon missed estimates, and its $200 billion capital expenditure left investors worried about AI spending. Amazon shares fell 8% in the aftermarket following its earnings.

Geopolitics intruded on the market after Congress failed to reach a funding agreement, triggering a two-day partial government shutdown that delayed the release of employment data until next Wednesday. In the absence of official data, the JOLTs report showed a drop in US job openings to a 5-year low.

Crude prices were volatile, first falling at the start of the week after Trump announced he would hold talks with Tehran on Friday. However, uncertainty over whether a deal would be struck sent crude prices higher midweek. US and India reach a trade deal.

The BOE kept rates unchanged, with a 5-4 vote split, as was widely anticipated. However, it took on a slightly dovish tone by trimming its inflation forecasts. The ECB also kept rates unchanged, but analysts noted that officials were watching the exchange rate amid increased uncertainty.

Stoxx 600 reached a record high on Tuesday but was unable to keep up the momentum through the rest of the week. RBA raised rates by 25 bps as expected, but provided a hawkish surprise by leaving the door open for more rate hikes. SpaceX acquired xAI, merging Musk's ambitious companies.

Biggest Market Movers

• The dollar rose by more than 1% despite the partial government shutdown, as markets assessed the impact of the appointment of relatively hawkish Kevin Warsh to replace Powell at the Fed in May.
• The yen was the worst-performing of the major currencies as polls showed Takaichi was expected to win a resounding victory in snap elections called for Sunday.
• AUD was the strongest of the major currencies after the RBA sounded more hawkish than anticipated, closing higher against a firm greenback.
• Silver prices fluctuated amid tight liquidity, rising above $90 per ounce on Wednesday and falling back to $65 on Thursday for a still substantial drop of over 6%.
• US equities underperformed, with the Nasdaq falling the most since April of last year (over 3%) amid a sell-off of software and services stocks.

Top Events in the Week Ahead

In the coming week, the focus could be on tech stocks to see if they find a floor while the market digests the results of the snap election in Japan and nuclear talks between Tehran and Washington scheduled before the week starts. Economic growth might be the theme of the week, with UK GDP figures and US labour data on tap after the delayed NFP results.

US NFP and CPI in Focus

The star data of the week will likely be the figures most influential in determining Fed policy, with the market awaiting public comments from Trump's nominee to chair the central bank. First up is the delayed January NFP data, which is expected to show the US added 40K jobs, down from 50K in December. Meanwhile, the unemployment rate is anticipated to rise to 4.5% from 4.4%. Then attention then shifts to Friday when the headline US CPI is forecast to drop to 2.4% from 2.7% previously. The core rate, however, is expected to decline less dramatically to 2.5% from 2.6%. Markets are pricing in a less than 20% chance of a rate cut at the next FOMC meeting in March. Attention will stick to gold as it closed the week below the $5,000 handle, with focus on $5,100 and $4,550.

UK Economy Struggles On

After the BOE's tight policy decision that left markets raising the odds of a rate cut at the next meeting, investors will be looking to see whether the growth figures affirm the narrative. UK Q4 GDP is projected to speed up slightly to 0.2% after the surprise beat in November, with December growth accelerating to 0.3%. A hotter-than-anticipated economy could convince more MPC members at the BOE to hold off on rate cuts a little longer. With the pound trading below 1.3600 but recovering, that level will be critical. A breakdown below 1.3500 would open the door to 1.3400, whereas a continued recovery will expose 1.3650 and this week’s peak at 1.3733.

Other Events and Earnings

The Fed's Bostic is scheduled to deliver a speech on Monday. Tuesday has Australia's NAB and Westpac confidence surveys. China inflation figures come out on Wednesday. Thursday includes the US existing home sales. For Friday, the Eurozone December trade balance is expected.

Earnings season will be past its peak, but many notable names remain to report, such as Becton Dickinson, AstraZeneca, Coca-Cola, Gilead, Cisco, McDonald's, Unilever, British American Tobacco, Anheuser-Busch, Enbridge and NatWest.