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11.01.2010 - The week ahead - Investors await another pool of December figures

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Date: 2010-01-11 11:34

The 2010 is about to be a year of recovery – at least that’s the prevailing expectation at the moment. The first week was indeed optimistic, encouraging stock market bulls to charge. Meanwhile, the rally on the dollar stalled on weaker payrolls figures. This week, investors are going to be focused on US macro data to be released on Thursday and Friday.


The rally on the stock markets doesn’t necessarily reflect the latest releases as these were mixed. After a strong ISM reading, we had not that impressive ISM services and a bit disappointing payrolls figures. Still the S&P500 managed to break upwards from the two-months consolidation and might be heading towards 1250 points, that is a level last seen before a collapse of the Lehman Brothers. An impulse came partly from maneuvers in portfolios of institutional investors who might adjust towards a greater exposure to riskier assets, including stocks.

While the payrolls report didn’t hurt stocks, it undermined fundamentals for the rally in the dollar. It is worth noticing that since December 31st investors are pulling back from bets on higher rates on FRA contracts and weaker payrolls release only reinforced this process. The EURUSD has a strong support at 1,4220-60 and a much weaker resistance around 1,4575. In case of further rises on the pair, levels of 1,4625 and 1,4675 may create opportunities for sellers to counterattack. One should remember that a reversal in correlations between the dollar and stock markets observed in December will not be long lasting unless investors begin to believe in Fed’s determination to tighten the monetary policy.  

The first week delivered crucial macroeconomic reports from December, but the rest of January isn’t about to be lighter. This week investors are going to focus on US releases: retail sales on Thursday and industrial output, CPI, preliminary UM sentiment index and NY activity index on Friday. Retail sales improved markedly in October and November and the annual dynamics is already on the positive territory. Another strong reading here would provide a helping hand for the dollar. The focus on the monetary policy is thus far centered around the Fed. The ECB meeting (Thursday) isn’t expected to attract a lot of attention.

Today, earnings season is officially started by Alcoa but as usual, the most exciting releases are still some days away. The earnings season will gain momentum in the second half of next week (with Goldman Sachs presenting reports on 21st of January) and electrify investors for another couple of weeks.

Przemysław Kwiecień
Chief Economist