Why we are in for a decisive week for the markets

Baptiste Lambert
Published in Monday, January 30, 2023 9:38 am •
five min read

Central bank meetings, US jobs report, Big Tech results… The coming week could mark the end of the bull market or give it an extra springboard.

Interest rate

This is without a doubt the most decisive macro factor: the Fed (Wednesday) and the ECB (Thursday) will announce another interest rate hike this week. Everyone is wondering how much: 0.25 or 0.50%, i.e. a further reduction in the rate increase or a continuation of the previous trend.

Inflation has clearly come down on both sides of the Atlantic, but some fear second-tier inflation will remain higher than expected this year. This is certainly true for Europe, which is facing cost-driven inflation (energy prices) rather than supply-side inflation as in the United States (market overheating and spiraling wages and prices). This persistent inflation can push interest rate peaks higher.

In both cases, the ECB and the Fed are left with some leeway. Europe appears to be returning to growth, while employment in the United States remains extremely limited.

Which brings us to the next point: the new US employment report, which will be published on Friday, paradoxically, after the Fed’s decision.
As you know, the central bank is trying to cool the economy and one of the main indicators that the Fed itself relies on is the creation of jobs. Economists expect 185,000 jobs to be created, a real slowdown from 223,000 in December and 263,000 in November. At the moment, the unemployment rate is at a historically low level of 3.5%.
Hourly pay will be another key metric to keep an eye on. Things are slowly but surely slowing down: experts expect growth of 4.3% against 4.6% in December and 5.1% in November year on year.

After a year of observing only the attitude of central banks, the market is returning to its basics: investing in companies with good results. This data will become indispensable again in 2023 and will overcome concerns about central bank decisions.
This week will be another week of important results for technology: after Microsoft and Tesla last week, Alphabet, Apple, Meta and Amazon will give way.
At the moment, the results already showed a slowdown in demand. Even the big banks, which should have taken advantage of the high rates, didn’t do spectacularly well. Worse, they are buffers against the storms of 2023 (in the face of defaults and reduced credit).

After a strong start to the year for both European markets and the Nasdaq, for example, the question is whether we will stay in this positive spiral. Opinions are very divided.
Jimmy Cramer, CNBC staff analyst, believes that if the Fed makes a positive decision on Wednesday (0.25%), it could be a holiday for the markets.
Eminent investor Jeremy Grantham still thinks we’re in danger of collapse. Hopes for a soft landing will give way to a recession. He sees the S&P 500 drop 20-50% despite a 20% correction in 2022.
Morgan Stanley believes that “the market is cheating” and has yet to cope with a recession correction. JPMorgan agrees.