Week of 16 february

Data took the driver's seat this week, with US NFP coming in surprisingly strong while UK GDP disappointed. The DJIA broke above 50K for the first time in history but suffered a selloff on Thursday that erased its weekly gains. Tech stocks sold off mid-week amid another bout of fear over AI disruption, leaving the Nasdaq headed for a second week of losses.

There is a relatively active economic schedule for the week ahead, with the highlight being the delayed US Q4 GDP figure, along with UK employment and inflation data. Trading could be light with China away for its week-long Lunar New Year holiday.

Week in Review

Over the last week, geopolitics gave way to data and concern that the AI sector could be facing exhaustion. After US NFP came in hotter than expected at 130K, up from the 65K projected, the market moved to price out a rate hike at the upcoming March FOMC meeting. This was followed by a sell-off in tech stocks on Thursday. The DJIA had been the outperformer of the major US indices, rising above 50K and scoring three consecutive record highs. However, it lost all of its weekly gains on Thursday, along with the rest of the major indices, heading for a weekly loss.

UK Q3 GDP grew by 0.1% instead of the 0.2% expected, putting pressure on the BOE to ease. Futures markets have moved up their expectations for a rate cut by one month and now price in 25 bps of easing at the March meeting.

In Japan, Prime Minister Sanae Takaichi won a landslide victory, giving her LDP party a supermajority in its own right. Nikkei rallied, but the yen rose due to increased intervention potential and comments from FinMin that new debt issuance would not be necessary to fund the budget.

US and Iranian officials met over the weekend and vowed to continue talks, easing tensions and sending crude prices lower, while Venezuelan efforts to increase production supported prices. However, on Thursday, it was disclosed that the US was deploying additional military assets to the Middle East, suggesting tensions remained high.

Reports circulated on Friday that US President Donald Trump was looking to roll back tariffs on metal and aluminium goods to deal with cost-of-living pressures. This was after the US and Taiwan reached a trade deal that lowered tariffs on Taiwan.

Biggest Market Movers

• The yen was the strongest-performing major currency in the week following the snap elections.
• Gold started the week above $5,000 per ounce and rose to just under $5,150 before falling back below the handle amid a general market rout on Thursday.
• Crude declined for the second week in a row as tensions over Iran were easing and Venezuelan oil production ramped up.
• The Stoxx600 hit a record high on Thursday, aided by commodity stocks and offsetting losses in the tech sector.

Top Events in the Week Ahead

A US holiday on Monday, coupled with the start of the Chinese Lunar New Year, which will keep many Far Eastern bourses closed, will lead to a slow start to the week, barring an unforeseen geopolitical event. US and UK data will likely be the highlight as markets gauge the timing of interest rate decisions in major economies.

US Economy Cools Amid Data Barrage

There is a plethora of US data on the docket this week, partly due to scheduling delays from the two recent federal government shutdowns. The main focus of the week will likely be on Friday, with the concurrent release of the US Q4 GDP and the Fed's preferred inflation measure – the core PCE index for December. The US economy is expected to slow to an annual growth rate of 3.5%, down from 4.4% in the third quarter, which could constrain the Fed's room to keep rates elevated. Meanwhile, the annual core PCE price index for December is expected to remain unchanged at 2.8%, well above the Fed's 2.0% target. Earlier in the week, the US will also publish its trade deficit, which is expected to show lower imports and exports during December. December durable goods are anticipated to turn negative as well. Nasdaq could retest the 24k handle if data disappoint, with a shift in sentiment potentially eyeing 24500.

Looking to Keep the BOE On Course

Two key data points for the BOE this week are jobs and inflation figures. The market is keen to see if they remain within expectations and keep the BOE on track to cut rates at its next meeting. Tuesday sees the release of UK labour figures, with the unemployment rate in December anticipated to stay unchanged at 5.1%. The employment change for the month is projected to turn negative at -40K, compared to +82K in November. On Wednesday, the UK January headline inflation is expected to drop to 3.0% from 3.4% previously, while the core rate is also projected to reach 3.0%, down from 3.2% a month earlier. On Friday, UK January retail sales are expected to show a marginal deceleration to 0.3% from 0.4% in December. Following a mixed week for cable, the pair could revisit either 1.3500 or 1.3700, depending on the data trove and dollar.

Japan's Economy Could Help BOJ

Monday sees the release of Japan's Q4 GDP, which is expected to show a solid turnaround, growing at a 0.5% quarterly rate compared to -0.6% in the prior quarter. The growth could give the BOJ room to proceed with a highly anticipated rate hike amid the government's expansionary policies. On the other hand, attention will be on Friday's CPI release, with the headline rate expected to dip below the 1.9% target, down from 2.1% previously. Meanwhile, the core rate is projected to stay above target at 2.3%, but down from 2.4% a month earlier. Positive Japan releases could see USD/JPY breaking 152.00 and heading towards the 150.00 handle, whereas poor GDP and/or cooling inflation would suggest a local bottom, exposing 155.00.

Other Events and Earnings

Monday has Eurozone Industrial Production. The RBA publishes its latest minutes on Tuesday. Wednesday includes US building permits. For Thursday, Japan Machinery Orders are scheduled. Friday sees flash PMIs from several leading global economies.

Earnings season will be slowing down this week, with notable names reporting, such as Antofagasta, Medtronic, Palo Alto Networks, Analog Devices, Walmart, Alibaba, Deere, BAE Systems, Glencore, Centrica, and Anglo American.