The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The economic calendar is jammed packed with important data releases this week, including eurozone CPI and Retail Sales, and Chinese CPI, Canadian CPI, and US sentiment survey data.

Aside from economic data, we see the Reserve Bank of Australia Central Bank meeting to decide on interest rates, and Q4 GDP figures from the United States.

Reserve Bank of Australia interest rate decision

Economists expect the RBA to raise its official cash rate by 25 basis points to 3.35% on Tuesday. Last time out, in December, Australia’s central bank raised interest rates by 25 basis points to a 10-year high of 3.1%. It was the bank’s eighth rate hike in as many months, and Governor Philip Lowe warned that further rate increases were likely in the months ahead.

While the RBA’s caution is understandable given the country’s fragile housing market, small rate rises run the risk of allowing inflation to become stickier. Indeed, the latest data show that consumer prices jumped 8.4% in the year to December, up from November’s 7.3% increase. The RBA might have to adopt a boulder and more hawkish tightening policy in order to tame rising price.

The Reserve Bank Board is responsible for formulating monetary policy. The Reserve Bank sets the target ‘cash rate’, which is the market interest rate on overnight funds. Since March 2020, the Reserve Bank has also set a target for the yield on 3-year Australian Government bonds. Decisions regarding monetary policy are made by the Reserve Bank Board and explained in a media release announcing the decision at 2.30 pm after each Board meet.

BP Results

This week we see BP release Q4 results hot on the back of Shell’s release last week. With oil prices riding high alongside the FTSE100 it could be a good week for BP.

In the first nine months of 2022, capex spending on low-carbon energy came in at $447m, which represents just 17% of BP’s total capex spend of $2.64bn over that period.

In November, BP reported that underlying replacement cost profits – a measure BP uses as a proxy for net profit – surged to $8.2bn in the quarter to September, up from $3.3bn a year earlier.

The London-listed company pledged to return a further $2.5bn to shareholders through a share buyback scheme – a controversial move in the eyes of environmental campaigners as the sum dwarfs investment in renewables.

UK Q4 GDP

The UK economy was expected to have flatlined during the fourth quarter of 2022, which is no doubt better than 0.3% contraction seen during the previous month.

Recent retail sales figures suggest that consumer spending has held up reasonably well, and any wage data is also on the rise.

In 2023 it is still likely to be very challenging time for the UK economy. The IMF said this week that it expects UK GDP to contract by 0.6% this year, making Britain the only G7 economy forecast to shrink in 2023.