As all the festivities from ringing in the new year subside, markets will be picking things up from where they left off in 2022.
Investors and traders are faced with the similar macro themes in the new year, with markets reacting to the economic damage (think recession) wrecked by the central banks’ battle against inflation.
Against such a backdrop, these are the key economic data releases and events due in this first week of 2023:
Monday, January 2
Tuesday, January 3
Wednesday, January 4
Thursday, January 5
Friday, January 6
This week’s marquee event: US jobs report on Friday
The incoming NFP report (as with the jobs data from months past) should inform market participants about how high the Fed can send US interest rates this year.
Here are the currently held market forecasts for this closely watched data:
Economists generally reckon that gains of 100,000 per month and softer wages growth are critical to timing the peak Fed funds rate and subsequent cuts.
It seems as though the hourly earnings data will pose the greatest market sensitivity.
Another higher-than-expected average hourly earnings implies that inflationary pressures are set to persist in the world’s largest economy, which would give the Fed the green light to hike rates even more aggressively.
If the data shows continued resilience in the US labour market, that could embolden the Fed to raise interest rates even past than the market-expected 5% level this year (the upper bound of the Fed’s benchmark rates now sit at 4.5%).
The above narrative may trigger another risk-off wave across major asset classes, on the notion that there’s still a longer runway before we get to peak US interest rates.
However, bad news is set to be good news in 2023.
A lower-than-expected headline NFP print … slower hourly earnings growth … a higher-than-expected unemployment rates … any of these may be cheered by risk assets before the weekend arrives.
The above market response would be based on the notion that widening cracks in the US jobs market may prompt the Fed to rein in its hawkish ambitions, cautious about hiking rates too far and imposing too much damage on the US economy.
Also, look out for Fed policy clues in Wednesday’s release of the FOMC minutes.
The FOMC minutes from the December meeting will also be in focus as they may give markets more colour around the risks to the economic outlook and for Fed policy.
Discussions around why officials continue to view the risks to inflation as pointed to the upside will be of interest.
Last month’s meeting was more hawkish than many expected as the “terminal” rate was raised to 5.1% on the interest rate dot plot. Money markets still only price in a peak rate around 4.95%.
New year, same ol Fed fears for tech stocks
Note that the tech-heavy Nasdaq 100 shed 33% in 2022, marking its worst annual performance since 2008 (-41.9%) amid the throes of the global financial crisis (GFC).
Amidst last year’s selloff, the mid-10k region seems to be holding up as the critical support level, at least in recent months.
Note how the Nasdaq 100 has rebounded each time it faltered below the psychologically-important 10,700 line in Q4 2022.
Tech bulls will be hoping that the 10,700 region will mark the worst of the selloff for the Nasdaq 100.
Even if that were the case, it would be a long slog back uphill for tech stocks, given the headwinds stemming from a Fed that’s still intent on raising US interest rates, even risking a recession in the world’s largest economy along the way.
Brace for a bumpy 2023.