Week ahead: Tech earnings, FOMC, BoC rate decision, EZ GDP, Tokyo CPI

Weekly recap:

After steep declines at the start of the week, US stocks reversed course mid-week, rebounding on Wednesday and Thursday before running out of steam on Friday. As a result, the S&P500 ended the week 0.35%, and the Dow ended the week 0.55% lower.

The week was dominated by Trump and his threats of trade tariffs over his desire to acquire Greenland. Following a speech in Davos, Trump announced a framework for a deal over Greenland, withdrawing trade tariff threats against eight European countries and aiding a recovery in risk sentiment.

However, it’s worth noting that the US dollar fell 1.8% across the week, and Gold and Silver continued to push to fresh record highs even on Friday after the deal was announced. This underscores lingering nervousness in markets, potentially linked to US policy instability and a lack of credibility surrounding the Trump administration. Gold and Silver have surged further at the start of trade on Monday, with Gold through $5000 to $5100, and Silver is nearing $110.

On the data front, US Q3 GDP was upwardly revised to 4.4% annualised, while US core PCE, the Fed’s preferred gauge of inflation, held steady at 2.8%. This data gives the Fed no reason to rush to cut interest rates.

Tech earnings

This is the second busiest week of Q4 earnings season, with 103 S&P 500 companies scheduled to report this week. Four of the “Magnificent 7” are set to report quarterly earnings this coming week, including Microsoft, Tesla, Meta and Apple, which could set the tone for the entire sector. Attention will be on AI capex, which, for hyperscalers, is expected to top $600 billion in 2026. The earnings come after a recent rotation out of tech stocks since October into value stocks through large-cap cyclicals and small caps.

These moves came as the market grew sceptical of the hundreds of billions being spent to develop AI and on when those investments would yield returns. The group is expected to post 20% profit growth in Q4, the slowest pace since 2023. Therefore, these firms are under pressure to show that the vast sums committed to capital expenditures are starting to pay off. Strong earnings could help capital flow back into the tech sector and lift the Nasdaq. Weak earnings could fuel the rotations away from tech.

Australian CPI (Wednesday)

Q4 and December CPI are due on Wednesday. Q3 CPI rose 1.3%, up from 0.7% in Q2, taking the annual headline CPI rate to 3.2%, up from 2.1% in Q2 and marking the highest quarterly increase since March 2023. This was mainly driven by housing costs and the service sector, particularly travel prices. Since the Q3 CPI release, inflation has shown elevated pressures peaking at 3.8% in October before easing to 3.4% in November.

The December 2025 CPI level is expected to show headline inflation rose 0.5%, taking the annual rate to 3.5%. A hotter-than-expected CPI could reinforce the RBA’s tightening bias. The market is pricing in a 60% probability of a 25-basis-point hike at the February meeting, with a full 25-basis-point hike priced in by May. The Aussie dollar has been a notable strong performer, and hot inflation data could send AUD/USD higher.

BoC rate decision (Wednesday)

The Bank of Canada will make its first rate decision of 2026 at a time when the Canadian economy appears to be holding up reasonably well, despite a lack of progress on lower US tariffs on Canadian exports not covered by the USMCA. Employment has been increasing steadily since September, and GDP growth recovered in Q3, with the next GDP reading due on Friday.

The inflation picture has been more mixed, so the Bank of Canada is almost certain to keep rates unchanged. The market is pricing in a 40% probability of a rate increase by the end of the year. However, should BoC policymakers keep the option of a rate cut on the table, the loonie could reverse some of its recent gains, lifting USD/CAD. A hawkish BoC could see the pair extend its decline.

FOMC rate decision (Wednesday)

The Fed will hold its first policy meeting of the year this week, announcing its decision on Wednesday, and no change in rates is expected. The Fed cut interest rates by 25 basis points to 3.5% to 3.75% in the December meeting on a nine-to-three vote. Federal Reserve chair Jerome Powell said the Fed is well-positioned to wait and see how the economy evolves, emphasising a data-dependent approach. Since the meeting, U.S. data has been stronger than expected, with GDP growth upwardly revised to 4.4% annualised. Meanwhile, core inflation is it 2.8%, giving the Fed little reason to move on rates for now.

There are also signs that the labour market has stabilised, although current “no hire no fire” conditions are hardly screaming of a recovery. The market is pricing in a 95% chance of no change, and right now the focus will be on Powell’s press conference for hints on labour and inflation risks, amid tariff and geopolitical uncertainties. A cautious Fed could offer some support to the USD, which is falling sharply.

Fed chair nominee

It is, of course, possible that the most significant highlight this week may not come from the Fed or from data. President Trump might try to steal Powell’s thunder by finally announcing who will replace the Fed chair in May. It’s thought that Trump has narrowed the selection to 4 candidates, including White House economic adviser Kevin Hassett, Fed governor Christopher Waller, former Fed governor Kevin Wash, and Rick Rieder, BlackRock’s chief bond investment manager.

While US equities could be happy with any of those picks, bond markets may prefer Christopher Waller. The US dollar, on the other hand, may not see an immediate reaction, preferring to wait for more clarity on policy direction under the new leadership.

Tokyo CPI (Friday)

Tokyo CPI data comes after the BoJ meeting last week, when the central bank left rates unchanged at 0.75% but lifted its inflation and growth guidance, keeping the prospect of more rate hikes on the table. Core CPI for December eased to 2.3% YoY, amid some cooling in price pressures owing to lower energy prices and easing food inflation. Cooler-than-expected Tokyo inflation could lower expectations of further BoJ rate hikes.

However, it’s also worth keeping an eye on Japanese bond yields, which have been extremely volatile following the dissolution of parliament and the snap election called for February 8th. USD/JPY fell sharply on Friday, dropping 200 points on a “rate check”. The recent weakening in the USD has pulled the yen further away from intervention territory.

Eurozone Q4 GDP (Friday)

While easing tensions between the US and the EU will be a relief, discussions surrounding the Greenland framework deal could lead to ongoing volatility for the EUR. Attention will also be on GDP data, which might also move the dial. Eurozone GDP grew 1.4% year on year in Q3 compared to the 1.6% expansion in Q1 and Q2. The slowdown was due to softer household consumption and investment growth, partly offset by export and government support.

Preliminary forecasts for Q4 point to modest quarterly growth of 0.2%, slightly slower than the 0.3% growth in Q3. The markets are expecting the ECB to keep interest rates on hold throughout 2026 as inflation hovers around the 2% level, and the focus is on growth, which is showing signs of a very slow climb higher.

Open free account

Trading involves risk.