Markets in limbo ahead of FOMC

Good morning

It’s the end of January!  Where has that time gone?  OK so I was ill the first couple of weeks of January, knocked out by Covid of all things, so my month really started around the 15th.  Even so, January is a month that usually drags on but in this case it seems to have flown by.  The evenings are certainly getting lighter and the temperatures have generally been milder, but unless I’m mistaken February can be a month of rain, snow and ice.  We’ll see. 

This year will be longer than the previous three, with an extra day in February for the leap year.  I used to be jealous of anyone having a birthday on 29th Feb, guess it was just about being different.  Amazing what you worry about as a kid.

The currency markets look like they have once again held steady, the US dollar is marginally higher with GBPUSD at 1.2680 and EURUSD 1.0815, although we did get a bit of volatility yesterday afternoon when JOLTs job numbers came out stronger than expected, pushing US dollar higher with GBPUSD reaching two week lows at 1.2675, in turn pushing GBPEUR down to 1.1675.  The move was short-lived, GBPEUR is now back above 1.1700 and 1.1725.

Aussie CPI came in below expectations which will ease some pressure on RBA.  GBPAUD was trading around 1.9230 but pushed up some 100 pips on the release to 1.9330, although as I type this it has lost most of those gains, trading back as 1.9270.  The softer numbers have led some banks to bring forward their expectations of an RBA rate cut to somewhere around August as opposed to November

Some decent data on the calendar today including the ADP employment number which is occasionally a reasonable nonfarm payroll indicator, but of course the highlight will be Fed’s rate announcement this evening.  As I’ve made clear before, no policy change is expected, the key will be information about the timing and pace of possible rate cuts.  With decent data still coming out of the US, and with the Middle East situation potentially keeping inflation sticky, there must be a chance the Fed push back on the idea of early cuts.  However, a clear move away from a rate rise bias is anticipated. 

Biden has still not announced his plans for retaliation against the recent attack on US forces.  The Iraq-based group that launched the attack and said it has suspended operations against US,  which might potentially be enough to dissuade US from large escalations.  Meanwhile the Houthis have made it clear they are prepared for a long-term confrontation, not entirely sure what that means but lets guess at least as long as the Gaza conflict ensues.

Premier League action returned last night, Luton has a solid win against Brighton to drag them out of the bottom three.  Arsenal scraped a win against Forest to keep their title drams alive.  Spurs play this evening and with Villa losing last night, could get back into the top four if they can overcome Brentford.  Be interesting to know what result Ivan Toney sees for this match…

-  09.00 German retail sales

-  13.00 German HICP

-  13.30 CAD GDP

-  14.15 US ADP employment

-  14.45 US Chicago PMI

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  02.45 China Caixin manufacturing PMI