US EARLY MORNING: NDX is outperforming after Meta's results; heavy day of key earnings and central bank events ahead

SNAPSHOT: US equity futures are mixed, with the ES, RTY and YM all near neutral levels, although the NDX outperforms after Meta Platforms (META) surged over 20% following its earnings (it has a weight of around 1% in the index, but is a bellwether for other tech/communications names). Meanwhile there was something for both the hawks and doves at yesterday's policy meeting - we recap the main points below. Treasury yields are around 1bps off unchanged. Today’s highlights are the ECB and BoE policy announcements (previews for both can be found below). Stateside, weekly initial jobless claims data comes ahead of Friday’s BLS jobs report (the survey windows do not overlap for this week’s claims); Q4 unit labour costs will also be released. Factory orders for December, and potential revisions to the durable goods data for that month are also due. 

Our full day ahead calendar can be accessed here; or click here for the PDF version.

PREVIEW - BOE POLICY ANNOUNCEMENT (12:00GMT/07:00EST): Analysts surveyed by Reuters and market pricing look for a 50bps hike in the Bank Rate to 4%. The decision to hike rates is expected at 7-2 with Mann and Tenreyro set to remain in the unchanged camp. Within the remaining seven, there is likely to be a split of views, the extent to which is hard to judge given the lack of comms from the MPC since December. HSBC has attempted to form a base case scenario with an out-of-consensus call for a 25bps hike in which Bailey, Cunliffe, Broadbent and Pill go for 25bps, whilst Mann, Haskell and Ramsden back a 50bps move. However, such a step down in the cadence of rate hikes would likely need to be accompanied by guidance that rates will still have further to run given developments in the labour market. Looking beyond February, a 25bps hike in March is priced at around 80% with markets split on whether a further 25bps would follow in Q2 to take the terminal rate to 4.5%. In terms of the accompanying forecasts, HSBC expects that the impact of the stronger GBP and softer energy prices will likely outweigh the impact from stronger growth and lower rates, which should therefore lead to a downward revision to the MPC's Q4 2023 inflation forecast to 6.9% from 7.9%. BoE rate decision, minutes and MPR due Thursday 2nd February 2023 at 12:00GMT/07:00EST, press conference due at 12:30GMT/07:30EST. Full Newsquawk preview here.

PREVIEW - ECB POLICY ANNOUNCEMENT (12:45GMT/07:45EST): Consensus and market pricing looks for a 50bps hike in the deposit rate to 2.5%; this would take the deposit rate into slightly restrictive territory. The December meeting saw President Lagarde state that "based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting, and possibly at the one after that, and possibly thereafter". This statement saw consensus coalesce around the idea of a 50bps hike for the upcoming meeting and comms from ECB officials have done nothing to lead markets away from this view. That said, some confusion around the rate hiking cycle was observed after a Bloomberg report suggested that policymakers are reportedly beginning to consider just a 25bp hike in March. Nonetheless, commentary from policymakers has done little to suggest that the GC is considering such a step down at this stage and has leaned against such reporting. With regards to the balance sheet, the prior meeting saw the GC announce that from the beginning of March 2023 onwards, the APP portfolio will decline at an average pace of EUR 15bln per month until the end of Q2 with its subsequent pace to be determined over time. For the upcoming meeting, further technical details on the programme are set to be announced. ECB policy announcement due Thursday 2nd February; rate decision at 13:15GMT/08:15EST, press conference from 13:45GMT/08:45EST. Full Newsquawk preview here.

PREVIEW - EARNINGS FROM GOOG AND AMZN (via JPM): GOOG: JPM says GOOG is still well owned amongst long-only funds, many of which added longs on the recent layoff headlines, although it says that it is still reasonably crowded on the short side (and a funder for META longs too). "Comps are tougher, and recent AI headlines have an air of existentiality to them," JPM says. The bank expects Q4 total revenues to grow +6% FXHN, with search reported numbers flat Y/Y, YouTube -3%, Cloud growth of around 32% (vs +38% in Q3). JPM adds that the Q3 buyback was USD 15.4bln, and investors are looking for something similar in Q4. AMZN: JPM says Azure sent a mixed message around the resilience and maturity of the business, and this seems like one of the more controversial quarters AMZN has faced in a while. The bank notes that positioning is "clean-ish", especially given the late 2022 sell-off. "Ultimately cost saves will come from AWS; AWS is also more exposed to Financials/Crypto/SMBs vs. Azure." JPM expects Q4 revenue to come in between USD 145-147bln, although the bank says it has a feeling it could be lower. AWS growth is expected to be "+20ish%" (vs. +27% in Q3); JPM says the forward commentary and exit rate will be important). It looks for AMZN to guide Q1 revenues between USD 123-125bln. Our full list of earnings expectations for the day can be accessed here.

FOMC RECAP: The Fed hiked its FFR by 25bps to 4.5-4.75%, as expected. The statement said the central bank continues to see "ongoing increases" in the Fed rate as being appropriate, coming against some expectations that the line could be dropped in order to give optionality for a lower terminal rate than the 5-5.25% median dot in the December SEPs. While that didn't happen, we did see a switch in language on guidance from the "pace of future increases" to the "extent of future increases," suggesting that debate is moving from the size of hike increments to how many hikes remain in the cycle, a dovish offset to the continued use of "ongoing increases". Elsewhere in the statement, the Fed acknowledged that inflation had eased somewhat, but remained elevated, while it also dropped references to public health as a factor in the bank's policy assessment. Chair Powell's post-meeting press conference was judged as mixed; despite markets cherry-picking the dovishness, where he seemingly looked to sit on the fence on many topics rather than cut off his options. The Fed Chair confirmed that the disinflation process was underway, albeit he was eager to highlight that core services inflation ex-housing had not shown progress. Powell said the Fed's focus was not on short-term moves in financial conditions, but that it's important for them to continue to reflect the policy restraints put in place. He believes that policy is still not 'sufficiently restrictive', but left optionality by stressing data dependence, later saying that it is possible that the Fed updates its policy path if the data came in differently to what it expects. Powell said the Fed has not yet made a decision on the terminal rate, and that it will look at the data between now and the March SEPs, adding that it was possible that it could be both lower or higher than the 5.1% seen in the December SEPs. Powell sees a path to getting inflation to 2% without significant economic decline, though it could take more slowing in the economy than it expects. Overall, there was something for both hawks and doves in his remarks, and at risk of fitting narrative to price action, perhaps that is the takeaway. Where Powell has previously tended to lean on the hawkish side, refuting the notion of any imminent Fed pivot, he now appears to be shifting to a more ambiguous stance, giving him the optionality to shift when needed.

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02 Feb 2023 - 09:20- Research Sheet- Source: Newsquawk

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