Markets are treading water ahead of US fourth-quarter growth data. Ten-year Treasury yields are holding near 4.16 percent , the dollar is almost unchanged, and key commodity prices – including the major oil benchmarks – are up slightly.

Equity markets – key to the dollar’s outperformance over the last year – are setting up for a weaker open after Tesla Inc. missed earnings guidance and said it would grow more slowly this year. Surprising no one monitoring trade flows, Elon Musk warned that Chinese competitors would “demolish” Western automakers without the imposition of protectionist policies on the industry.

The Canadian dollar remains on the defensive after the Bank of Canada held the overnight rate steady again, and removed statement language that had previously threatened further rate hikes. Governor Mackem set the stage for a pivot to easing policy later in the year by saying “discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level”. With growth remaining lacklustre and inflation coming down to target, we expect the first move to come in June, with borrowing costs coming down roughly in sync with their US counterparts through the latter half of 2024.

Ahead today:

The European Central Bank (ECB) is expected to deliver a proper snoozer this morning, keeping all of its major policy settings intact and leaving forward guidance mostly unchanged. Following the Bank of Canada’s example, a statement passage that previously read: “the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary” could be modified slightly to prepare markets for a pivot – but, like its Canuckian counterpart, we’re not sure where the upside would lie in doing so.

Fireworks could come during the post-decision press conference – President Lagarde doesn’t have the communication skills of her counterpart at the Federal Reserve, and missteps are possible – but markets are broadly positioned for a pushback against early easing expectations. Officials have repeatedly said that they need to see data from the first quarter before making a decision to cut rates, making the June meeting the most likely candidate for a first move – and there’s little to suggest that message will change today.

Recent indicators have painted a conflicted picture of underlying fundamentals. Loan growth exhibited signs of recovery in the fourth quarter and yesterday’s purchasing manager indices pointed to a bottoming in economic activity, but today’s Germany’s IFO business sentiment survey showed confidence in Europe’s largest economy falling unexpectedly in early January. Respondents in the services sector reported the biggest softening in current conditions, and the expectations index, which captures views on the next six months, dropped to 83.5 from a revised 84.2, suggesting that growth could keep slowing.

The US is likely to report a slowdown in growth over the fourth quarter of last year, with markets expecting gross domestic product to expand at an annualized 2 percent, down from 4.9 percent in the prior three months as business investment stagnated and inventories were trimmed. Jobless claims are seen inching higher to in the week ended January 20, but should remain historically low. Durable goods orders might remain sluggish, with ex-transportation (read: ex-Boeing) purchases growing 0.2 percent month-over-month in December.

Still Ahead

FRIDAY

The Federal Reserve’s favourite inflation indicator – the core personal consumption expenditures index – is believed to have accelerated slightly on a month-over-month basis in December, up 0.2 percent from the prior month. Fed chair Jerome Powell’s favoured “supercore” measure – core services excluding rents – should come in under the 2-percent threshold on a three-month annualized basis, suggesting that the central bank has largely achieved its inflation mandate, and helping set the stage for an easing in policy settings in the coming months. Consumer spending, partly driven by rising incomes and falling energy prices, but also boosted by easing financial conditions, likely grew more quickly, with total outlays rising 0.5 percent on a month-over-month basis. (08:30 EDT)