The markets: Central bank rate decisions, tech earnings, and key economic data

Euronews

27-01-2025

Stock markets posted consecutive gains last week following Donald Trump's inauguration. This week, attention shifts to critical interest rate decisions from the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of Canada (BOC).
Additionally, major US tech firms, including Microsoft, Meta Platforms, Tesla, and Apple, are set to report their quarterly and full-year earnings. Large European corporations such as ASML and LVMH are also scheduled to release their results.
Key economic data will include inflation reports from major European economies and the US fourth-quarter Gross Domestic Product (GDP) growth figures. Meanwhile, China will enter the Lunar New Year holiday from Tuesday onwards.
Europe
The ECB is widely expected to lower the deposit rate by 25 basis points to 2.75% on Thursday, despite elevated inflation in recent months. Policymakers are increasingly concerned about the economic outlook, particularly in light of Donald Trump's return to the White House.
Speaking at the World Economic Forum in Davos last week, ECB President Christine Lagarde emphasised the need for Europe to "be prepared" for potential shifts in US trade policy under President Trump. She also expressed confidence that Eurozone inflation remains on track to return to the 2% target this year. Analysts expect the ECB to continue cutting rates after this week's meeting, with a total reduction of at least one percentage point anticipated in 2025.
Germany, France, and Spain will release their preliminary Consumer Price Indices (CPIs) for January. Inflation is expected to cool in Germany and France but remain at an elevated level in Spain, according to consensus forecasts. Eurozone inflation increased to 2.4% in December, its highest level since July. Additionally, the bloc will release its flash GDP figures for the fourth quarter of 2024. Economists anticipate economic growth will have slowed to 0.1% quarter-on-quarter, down from 0.4% in the third quarter.
The fourth-quarter earnings reports from LVMH and ASML are scheduled for release on Tuesday and Wednesday, respectively.
United States
Markets have nearly fully priced in a no-change of the Fed funds rate on Wednesday, which is currently between 4.25% and 4.5%, according to the CME FedWatch Tool. The Fed has reduced rates three times since September, with a total reduction of a full percentage point.
Inflation ticked up to 2.9%, and is the highest since July, while the core inflation cooled to 3.2%, the slowest increase since August. Despite this, resilient labour markets and economic growth will likely make the Fed hold back from its easing cycle. US President Trump urged to bring the interest rates down last week but central banks are independent from political influence as Fed Chair Powell indicated previously.
The Fed will be more focused on the economic trajectory, although it is concerned about potential rising inflationary pressure if Trump imposes sweeping tariffs on other countries.
The US economy is expected to grow at an annualised pace of 2.7% in the fourth quarter, down from 3.1% in the previous quarter. However, this rate still reflects solid growth. This week's GDP reading will be the first of three, or an "Advance" estimate.
The US earnings season will remain in focus following Netflix's blowout results last week. The technology sector rallied amid President Trump's pro-tech policies, particularly after he announced a $500 billion (€480 billion) joint venture with tech giants to develop the US artificial intelligence infrastructure. Earnings from Meta, Microsoft, and Tesla will be released after US markets close on Wednesday, followed by Apple on Thursday.
Canada
The BOC is expected to lower interest rates by 25 basis points to 3% on Wednesday. Economic growth in Canada has stalled, and inflationary pressures have eased, with December's annual inflation cooling to 1.8%, down from 1.9% in November. Trump's tariff threats have increased the likelihood of further rate cuts. However, stronger-than-expected job data for December may complicate the outlook for future rate reductions.
Asia-Pacific
China will release its manufacturing and non-manufacturing Purchasing Managers' Index (PMI) data on Monday before the country enters a week-long holiday. Business activity in the manufacturing sector has returned to expansion since October, suggesting that the government's sweeping stimulus measures are taking effect. The non-manufacturing PMI has been expanding through 2024, and both indices are expected to remain on similar trajectories in January.
Australia's fourth-quarter inflation data will be closely monitored for clues regarding the Reserve Bank of Australia's (RBA) policy path. Headline CPI is forecast to rise by 2.5%, down from 2.8% in the third quarter. Easing inflationary pressures are likely to prompt the RBA to commence rate cuts this year.