Markets Face a Flood of Macro Risk After an AI Sell-Off Sinks Stocks: Macro Week Ahead

Investors will parse news this week from the Fed, ECB, BOC and Australian CPI

• Nasdaq is leading stock markets lower as DeepSeek shakes up the AI story arc.
• An FOMC policy meeting headlines a busy week for global central banks.
• Rate cuts are due from the ECB and the BOC as the RBA eyes inflation data.
  

A lull in macro event risk proved helpful for Wall Street last week. The bellwether S&P 500 and the tech-tilted Nasdaq 100 managed to rise 1.7% and 1.5%, respectively, building on the previous week’s advance (albeit at a slower pace). Modestly lower Treasury yields and a pullback in the U.S. dollar continued to set the stage for risk appetite.

But this week began with a brutal sell-off. The Nasdaq led U.S. markets lower, suffering the biggest one-day loss in seven weeks, following the unveiling of an AI model from China’s DeepSeek that appears to rival leading offerings from the likes of OpenAI. That shook up priced-in expectations for the transformative technology. 

Against this backdrop, here are the key macro waypoints to consider in the days ahead.

Australian consumer price index (CPI) data

Australia’s headline inflation rate is expected to tick lower to 2.5% year-on-year in the fourth quarter, marking the lowest reading in almost four years. Cooling price growth is expected to give the Reserve Bank of Australia (RBA) enough room to lower interest rates by 65 basis points (bps) this year. 

This amounts to at least two standard-sized 25bps rate cuts and a 40% probability of a third one. The RBA has erred on the hawkish side among the major global central banks.

Meanwhile, purchasing managers index (PMI) data has hinted that price growth perked up in January. On balance, a big dovish repricing of RBA intent seems unlikely.

Bank of Canada (BOC) interest rate decision 

Canada’s central bank is expected to cut its target interest rate by 25bps to 3% this week. Futures markets have priced in the probability of this outcome at a commanding 72%. This suggests the reduction itself may be less market-moving than the guidance on offer alongside it.

Canada’s economy has struggled despite close ties to a booming U.S. While some 80% of Canadian firms’ cross-border sales happen just south of the border, the services-oriented nature of recent U.S. growth has kept much of the uplift to domestic firms. How this shapes BOC thinking will be closely watched. Currently, 62bps in cuts are priced in for this year.

Federal Reserve monetary policy meeting

The U.S. central bank’s policy-steering Federal Open Market Committee (FOMC) is overwhelmingly expected to keep interest rates on hold following this week’s conclave. Benchmark Fed Funds futures price in that scenario with a probability of 97.3%. The next 25bps reduction is expected to arrive in May at the earliest, and more likely in June. 

This puts the spotlight on the text of the policy statement as well as the press conference with Fed Chair Jerome Powell after officials’ decision is revealed. Traders may be taken with any pushback on would-be dovish urgency from the Trump administration. The president talked up his monetary acumen last week. He favors lower rates.

Weighty economic data will help guide Fed policy bets. Fourth quarter gross domestic product (GDP) data is expected to show the U.S. economy grew at an annualized rate of 2.7%, a bit cooler than the previous 3.1%. Meanwhile, the personal consumption expenditure (PCE) inflation gauge is seen hitting a seven-month high at 2.8% year-on-year.

European Central Bank (ECB) interest rate decision

The last week of January is scheduled to deliver the first of four interest rate cuts from Eurozone’s central bank in 2025. The move has been priced in for months, implying little scope for volatility on its merits alone. Rather, traders will be keen to gauge whether anything has changed in the ECB’s intentions for the steps to follow.

Markets already expect the Eurozone to have the most dovish policy stance among the major economies. Buoyant PMI data last week unexpectedly put January’s pace of economic activity growth at the fastest since August. That may find reinforcement in gross domestic product (GDP) data this week. This might keep ECB doves at bay for now.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.