Markets look ahead to FOMC this week

Economic data were limited to start the week with markets instead focused on geopolitical developments in the Middle East and central bank decisions from the Federal Reserve and the Bank of England later this week. We expect there will be no change in the policy stance from the Fed at the conclusion of the January FOMC meeting but policymakers may use the meeting as an opportunity to push back against some of the early pricing of rate cuts.

Elsewhere the Eurozone will report GDP date later today which is expected to show a modest contraction of 0.1% q/q for the final three months of 2023 which would confirm that the bloc did indeed enter a technical recession after a contraction of 0.1% in Q3.

Today’s Economic Data and Events

• 10:30 FR GDP q/q Q4: forecast 0.0%
• 13:00 GE GDP q/q Q4: forecast -0.3%
• 14:00 EC Economic confidence Jan: forecast 96.0
• 14:00 EC GDP q/q Q4: forecast -0.1%
• 19:00 US Conference Board consumer confidence Jan: forecast 114.0
• 19:00 US JOLTS Dec job openings: forecast 8.709m
• 01/30 SR SAMA net foreign assets Dec

Fixed Income

• The US Treasury reduced its estimate for net borrowing in Q1 2024 to USD 760bn, down from a previous expectation of USD 816bn. The drop results from the Treasury having more cash than expected at the start of the quarter. For Q2 Treasury estimates net borrowing of US 202bn. The smaller estimate for this quarter helped to push USTs higher with yields on the 2yr UST down 3bps to 4.318% and the 10yr yield fell 6bps to 4.074%.
• Egypt is reportedly considering raising funds in AED as well as INR according to a statement from finance minister Mohamed Maait reported on WAM.

FX

• Currency markets closed in general higher against the dollar although a drop in EURUSD of 0.2% to 1.0833 helped to lift the overall DXY index. GBPUSD closed near flat at 1.2709 while USDJPY moved in favour of the yen, down 0.4% at 147.50.
• Commodity currencies were consistently positive with USDCAD down 0.3% at 1.3414, AUDUSD up 0.6% at 0.6611 and NZUSD gaining 0.7% to 0.6133.

Equities

• US equity markets closed higher overnight, helped by the drop in the US Treasury financing estimates. The Dow Jones added 0.6% while the S&P rallied about 0.8% and the NASDAQ gained 1.1%. European markets were more muted with the FTSE closing near flat while the EuroStoxx 50 added slightly less than 0.1%.
• Asian markets have opened with a positive bias today with the Nikkei adding 0.4% while the Hang Seng has rallied 0.8%.
• In the region markets closed softer overnight. The Tadawul dipped by 0.1% while the ADX fell by 0.3%. The DFM was the notable out-performer with a rally of 0.2%.

Commodities

• Oil prices fought for direction for much of the day with early rallies spurred on by geopolitical risks faded later in the session. Brent futures closed lower by 1.4% at USD 82.40/b while WTI dropped by 1.6% to USD 76.78/b.
• Early market estimates for OPEC+ exports in January show limited change in output levels, even among those countries that had pledged additional larger cuts for Q1. An estimate from market analysts Kpler puts the exports from those OPEC+ members who planned for deeper cuts at 15.4m b/d in January, basically unchanged from December.