Global Highlights for This Week:Software Sell-off Faces Reality Check as Non-Farm Payrolls and Inflation Reports Pile Up
Following the enthusiastic rebound across risk assets last Friday, the focus for this week remains on high-volatility assets—software, silver, and cryptocurrency—and whether the trend of capital flowing into cyclical and value stocks can be sustained.
By way of contrast, the S&P 500 Software & Services Index plummeted 15% in just over a week, while the Dow, fueled by cyclical stocks and NVIDIA, closed above the 50,000 milestone for the first time in history on Friday.
Jim Reid, Head of Global Economics and Thematic Research at Deutsche Bank, warned in a report that since the broader U.S. market is still primarily driven by the tech sector, persistent weakness in that industry could create headwinds for the indices.
"Markets can digest a sustained rotation for quite a while, even with significant sector-specific winners, without necessarily showing immediate stress at the index level," Reid wrote. "But the longer and deeper the sell-off in the dominant sector lasts, the harder it becomes for the overall index to withstand the drag."
Among the companies reporting earnings this week are software firms at the center of the recent storm, including Unity, AppLovin, S&P Global, and Robinhood. Their performance and management commentary will serve as a litmus test for whether the recent sell-off was justified. As earnings season winds down, household names like Coca-Cola and McDonald's will also report. Investors will also look to "shovels-to-the-AI-giants" firms like Cisco and Applied Materials for the latest read on AI demand.
Due to the brief U.S. government shutdown last week, markets will witness the rare occurrence of both the Non-Farm Payrolls (NFP) report and the Consumer Price Index (CPI) being released in the same week, specifically on Wednesday and Friday.
Beyond recent labor market trends, the NFP report will include the routine annual benchmark revisions, which could potentially strip away up to 1 million "ghost" jobs from previous data. Market expectations for January job growth are currently clustered in the 60,000–80,000 range; a print below this could reignite discussions regarding rate cuts.
In Asia, China’s January inflation and money supply data are expected this week. Following the close of trading this Friday, Chinese investors will enter the Lunar New Year holiday break, with markets remaining closed until February 24.
Another risk factor for this week stems from last Sunday’s Japanese House of Representatives election. Markets will closely monitor the impact of the election results on Japan’s fiscal and monetary policy. Against a backdrop of high debt levels, investors are focused on exactly "where the money will come from" for the verbal promises made by politicians.
The situation in the Middle East appears to be stabilizing. Following indirect talks between U.S. and Iranian representatives in Oman last Friday, President Trump remarked that "the two sides talked very well" and indicated that further talks would take place this week. Iran also called the meeting "a good start," though they have yet to confirm the subsequent schedule.
Finally, in a major flashpoint for U.S. public discourse, members of Congress will begin reviewing unredacted portions of the "Epstein files" starting this Monday, followed by Attorney General Pam Bondi’s testimony before Congress on Wednesday. Reportedly, only the 3 million documents already released to the public are currently open for review; the remaining 3 million+ documents that have not yet been made public are not included in this round.
Key Economic Events This Week
Monday (Feb 9): Eurozone February Sentix Investor Confidence Index
Tuesday (Feb 10): U.S. December Retail Sales; U.S. December Import Price Index
Wednesday (Feb 11): China January CPI; U.S. January Non-Farm Payrolls Report
Thursday (Feb 12): UK Q4 Preliminary GDP
Friday (Feb 13): U.S. January CPI