As the January market comes to an end, global financial markets may also usher in the most critical trading week of the year so far. From the first interest rate decision of the Federal Reserve this year to January's non farm payroll data, from the financial reports of the FAAMG "Big Five" in the US stock market to the quarterly refinancing statements of the US Treasury Department - all four core focuses, without exception, may further ignite the market trend
Since the beginning of the year, driven by the soaring stock prices of technology giants, the S&P 500 index has hit a historic high for five consecutive days. In the new week, whether FAAMG's Q4 financial reports from Facebook, Apple, Amazon, Microsoft, and Google can deliver a satisfactory answer, and whether the Federal Reserve's first interest rate meeting of the year and non farm data will suggest a rate cut in March will undoubtedly greatly determine whether the US stock market's journey to new highs can continue.
At the same time, the quarterly refinancing statement from the US Treasury Department is expected to have a profound impact on the trend of US bonds, and bond traders are expected to focus on whether US bond yields will be further boosted by the issuance cycle.
For domestic investors who breathed a sigh of relief just last week due to the improvement in A-share performance, it is clear that these external global market risk points will have a derivative impact on the domestic market, and they are not at all careless now!
Focus of this week ①: The Federal Reserve's first interest rate resolution of the year
According to the schedule, the Federal Reserve will announce its first interest rate resolution for 2024 at 3:00 am Beijing time on Thursday (February 1), and Federal Reserve Chairman Powell will hold a press conference at 3:30 am as usual.
At present, market investors have almost given a probability prediction of the Federal Reserve cutting interest rates in March, which is close to a "five to five opening". This undoubtedly makes the press conference after Federal Reserve Chairman Powell's meeting this week, as well as any signals he may choose to send, crucial. A key question is how Powell and his colleagues will interpret the recent series of economic data.
On the one hand, US inflation data is still continuing to decline. According to data released last Friday, the core PCE price index, the most favored inflation measure by the Federal Reserve, dropped to 2.9% in December of last year, marking the first time since early 2021 that it has fallen back to "era 2". On the other hand, consumer spending in the United States remains surprisingly strong. Despite clearly benefiting from the decline in inflation, this strength may still raise concerns among some that price pressures may rise again.
From the current expectations of market participants, the most likely action that the Federal Reserve is likely to take at this week's meeting may be to further revise its forward-looking guidance. Renowned journalist Nick Timirao, known as the "New Federal Reserve News Agency," wrote over the weekend that "Federal Reserve officials are expected to maintain interest rates unchanged during next week's two-day policy meeting and may remove previous hints of 'measures that are more likely to raise interest rates than lower them' from the policy statement."
Of course, it is highly likely that the Federal Reserve will not immediately give a hint of a rate cut in March. Quincy Krosby, Chief Global Strategist at LPL Financial, said, "People still expect the Federal Reserve to discuss' when '- rather than' whether 'to initiate a rate cut cycle. But unless inflation related data collected next month clearly indicates that the path to 2% is imminent, the Federal Reserve is likely to wait until May or June to start cutting rates."
In addition to when to cut interest rates, another part of the focus of this week's Federal Reserve monetary policy meeting may be on when to slow down the process of balance sheet tightening. Earlier this month, Dallas Fed Chairman Logan stated that the Federal Reserve may need to slow down the pace of reducing its balance sheet in the face of tightening liquidity in financial markets. As the use of the Federal Reserve and repurchase tools continues to rapidly decrease, it is clear that people will pay attention to whether Powell will express more opinions on the topic of balance sheet reduction this week.
Focus 2 of this week: FAAMG's financial report will be released within three days
Investors who want to know where the S&P 500 index will go next will need to pay attention to the "three key days" of this week.
From Tuesday to Thursday, five major US technology companies with a total market value exceeding $10 trillion - Microsoft, Google's parent company Alphabet, Meta, Amazon, and Apple - will each release their latest financial reports. They are likely to become a key force in determining the next steps of the US stock market, along with the Federal Reserve's decision early Thursday morning.
At present, the US stock market is entering the last trading week of the first month of the new year with a three consecutive positive trend on the weekly chart - last week, the Dow Jones Industrial Average broke through 38000 points for the first time in history, and the S&P 500 index also hit historical high records. The optimistic sentiment of investors towards the US economy, positive financial results, and sustained fervent bets on AI have jointly driven a new round of gains.
Among them, super large cap stocks such as Microsoft, Google, Amazon, Nvidia, and Meta undoubtedly played a crucial role, and these "seven giants" of the US stock market accounted for the majority of the index's gains last year. Despite the decline in the stock price of electric vehicle manufacturer Tesla since the New Year - with its market value shrinking by over $200 billion this month alone - these seven giants still hold a record weight of 29% in the S&P 500 index.
Behind the soaring stock prices of tech giants, risks clearly exist as well. Due to the fact that the stock prices of most super large cap stocks have reached historic highs, many industry insiders are concerned that investors may overly focus on a few stocks. If the financial reports and performance are not satisfactory, it may cause some pain to investors. It is worth noting that several companies have experienced explosive performance in the past week, causing pre market volatility in the US stock market. Intel and Tesla have fallen more than 10% in a single day, indicating the destructive impact of financial performance on stock prices and the market.
Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance, said, "Last year, technology stocks drove the market disproportionately, and large technology companies continued to have the greatest profitability, so their performance was crucial to the market."
Focus of this week ③: Release of quarterly refinancing report by the US Treasury Department
The US Treasury Department will release its quarterly overall financing estimate (QRA) on Monday (January 29) and details on increasing the auction size on January 31. The last quarterly refinancing report was released in early November, when the yield of the US 10-year treasury bond bond was close to a 16 year high. Secretary Yellen unexpectedly slowed down the scale of additional issuance of longer-term bonds, giving the US bond market a good chance to take a breather at the end of the year and continue to rebound.
And this time, strategists including Bank of America and Deutsche Bank predict that the US Treasury Department will have more foresight. They estimate that the sales of interest bearing bonds will grow at a similar rate to the refinancing scale in the previous quarter, which should mark the final round of three consecutive rounds of supply growth.
Vail Hartman, a US interest rate strategist at BMO Capital Markets, said that the US Treasury may increase the auction size of most of the annual bonds, excluding the 20-year bonds.
Bank of America strategists Mark Cabana and Meghan Swiber et al. wrote in a report that the impact of this supply increase on the market is expected to be limited. They added that since November last year, the market's demand for treasury bond bonds has improved. Now the Federal Reserve has completed the cycle of interest rate increase, and inflation has cooled.
Another BofA strategist, Michael Hartnett, pointed out in the report that the current market expects that the net borrowing scale of the United States will be $970 billion. If the debt supply figure needs to exceed $1 trillion, it will have a negative impact on the treasury bond of the United States.
At present, the yield of 10-year US treasury bond bonds has risen as a whole at the beginning of the new year, hovering near the highest level since the middle of December last year. If bond yields continue to rise, it may make the more risky stock market less attractive.
Focus of this week ④: How will non-agricultural data end the week?
As this Friday (February 2nd) enters the first Friday of February, the highly anticipated US non-farm data will once again meet with investors at the beginning of the month. If the Federal Reserve only gave an ambiguous and even completely "extreme" answer to the path of interest rate cuts during the week, then Friday's non farm data is likely to take over the banner that guides market expectations for interest rate cuts.
At present, economists surveyed by the media estimate the median that after an increase of 216000 in December, the number of non farm payroll workers in the United States is expected to increase by 173000 in January - the growth rate may slightly slow down. The January unemployment rate in the United States may climb from 3.7% last month to 3.8%.
From the performance of US economic data since the beginning of the year, although inflation has cooled down, a series of stronger than expected economic data, including GDP and retail sales, have still prompted traders to lower their expectations for a rate cut in March, including the hot December non farm payroll report released at the beginning of the year.
This has also made many US government officials proud. "From any perspective, the US economy is very optimistic. The sustained good employment situation means that consumers can continue to provide power to the economy," said Brad, Director of the White House Economic Committee and former Vice Chairman of the Federal Reserve
If the non farm payroll data released this Friday is further stronger than expected, it is likely to cause the market to further delay the estimated time point for the first interest rate cut. On the contrary, if the data performs poorly, it is expected to push up the possibility of a rate cut in March again. In addition to the main indicator of non-agricultural employment, the performance of hourly wage data closely related to inflation is also worth paying close attention to by investors.