Investors in need of a lift
Earnings season is off to a rocky start and not only are investors not comforted by what they’re seeing, but it’s also contributing to the unease in the markets. The next week will be huge after an awful start to the year that’s brought inflation and interest rate anxiety, earnings disappointment, and increased geopolitical risk.
The Federal Reserve will have an opportunity to ease the growing concerns in the markets that four rate hikes and balance sheet reduction won’t be enough to get inflation under control. The last week has seen plenty of speculation around the possibility of the first 50 basis point increase in more than 20 years and up to seven hikes next year which isn’t helping to calm the nerves.
The Nasdaq has been hit hard by the combination of higher yields and risk aversion which will make the big tech earnings next week all the more important. Netflix got things off to a disappointing start and paid the price. Can the other big tech names turn things around?
This is building up to be a huge week on Wall Street after investors have been rattled by a rough start to earnings season and now face a critical FOMC meeting that should pave the way for a March liftoff. The main event is the Fed policy meeting and press conference, but a close second will be the next round of earnings. The Fed is worried about inflation and will be delivering a series of interest rate hikes in the first half of the year. This week’s meeting is all about preparing markets for how they will normalize policy this year with rate hikes and balance sheet reduction.
With the Nasdaq falling into correction territory, stock traders will look to see if Microsoft, Intel, and Apple earnings can help form a bottom. Investors are growing cautious over the outlook as margin pressures continue to get hit over surging wage and transportation costs.
Geopolitics is also becoming a key focal point for investors, with US and Russian talks over Ukraine potentially having a huge impact on energy prices. US policy over North Korea may become more aggressive as the country seems poised to resume nuclear missile tests.
Plenty of economic data to come from the euro area next week which will no doubt draw a lot of attention, starting with the flash PMIs on Monday.
With markets once again getting ahead of the curve and pricing in a small rate hike in October, despite President Christine Lagarde pushing back against it, there will be a lot of focus on the releases and what they tell us about inflation.
A relatively quiet week as far as the UK is concerned. From a data standpoint, the week basically starts and finishes on Monday with the flash PMIs. With four rate hikes priced in this year, the focus remains on the inflation outlook and whether more may be needed.
Of course, the political arena is far more in the headlines right now. Boris Johnson is hanging on by a thread as we await the outcome from Sue Gray’s investigation into Downing Street parties during lockdown. Pressure has become almost unbearable on the Prime Minister but he came out fighting during PMQ’s and if Gray returns a favorable report, he could well live to see another day.
A quiet week on the economic side, with industrial output on Tuesday and PPI on Wednesday the only notable releases.
As far as Russia is concerned, the focus is on the geopolitics and whether the country is, as the US warns, about to invade Ukraine. The market impact could be very negative in that case and the currency is already coming under some pressure, despite higher oil prices, as the odds increase.
Inflation rose faster than expected last month, reaching 5.9%, up from 5.5% in November, which is right at the upper end of the central bank target range of 3-6%. The jump has made a second consecutive 25 basis point hike very likely which will take the repo rate to 4%.
A rare moment of refrain from the CBRT this week saw the repo rate remain at 14%. That brought an end to a run of four consecutive rate cuts that saw the repo rate slashed by 5% and inflation soar to 36%.
The move left the lira quite stable for another week after an extraordinarily volatile couple of months. Governor Sahap Kavcioglu’s briefing on the quarterly inflation report on Thursday will be all the more interesting after the decision to hold rates.
The CBRT said this week that a comprehensive review of the policy framework is being conducted and the lira will be prioritized. Perhaps we’ll learn more about what that means next week and whether more volatility is coming.
China Industrial Profits for December, which will be released on Thursday, is a key gauge of the strength of the business sector. The consensus stands at 10%, up from the November gain of 9.0%.
China has responded to recent Covid-19 outbreaks by enacting a zero-tolerance policy. There are more than 20 million people are in lockdown, but the economy has held up.
The Indian state of Maharashtra announced that it will reopen schools this week. Although the state had the highest number of Omicron cases in the country, new cases have fallen sharply. This raises hopes that Omicron has peaked and the economy can reopen. India has been devastated by Covid, recording almost 500,000 deaths from the pandemic.
No major data next week but traders continue to look for clues around a possible rate hike in February in response to rising global yields and higher oil prices.
Bank Holiday on Wednesday.
Australia releases CPI for Q4 on Tuesday. The consensus stands at 0.8% QoQ, unchanged from the third quarter. Price rises have been driven by an increase in energy, food, and new home construction costs. The energy component may ease in the coming months and wage growth remains weak, which means that inflationary pressures should be contained.
PMIs will be released early in the week which could dictate early trading.
Australia Day bank holiday on Wednesday.
New Zealand will publish CPI for Q4 on Thursday. Higher energy continues to fuel an upswing in inflation, with the headline reading expected to rise above 5.0% YoY. On a quarterly basis, CPI is expected to have climbed 0.8%, after a sharp rise of 2.2% in Q3. Gasoline and food costs are the primary drivers of inflation.
After decades of deflation, Japan is seeing a rise in inflationary pressures. On Tuesday, we’ll get a look at BoJ Core CPI, the central bank’s preferred inflation indicator. This will be followed on Thursday by Tokyo Core CPI for January. The consensus is a 0.2% gain, down from 0.5% prior.
Inflation has been boosted by rising energy and food costs, which will likely continue to boost inflation. At the same time, the Omicron wave is a downside risk.
Monday, Jan. 24
- Evergrande next dollar bond interest payments are due
- German Chancellor Scholz discusses Covid pandemic strategy
- Lawmaker ballot starts for Italy’s presidency
- COP27 climate summit
- European Union foreign ministers meet in Brussels
- European Commission VP Sefcovic and UK Foreign Secretary Truss meet for Brexit talks
- Australia CPI
- Singapore CPI
- Eurozone PMI
- Germany PMI
- UK PMI
- Australia PMI
- Japan Bank PMI
- Taiwan industrial production, money supply
- South Korea retail sales, department store sales
- Switzerland sight deposits
Tuesday, Jan. 25
- US FOMC begins a two-day meeting
- IMF launches the World Economic Outlook update
- Germany IFO business climate
- Mexico international reserves
- New Zealand performance services index
- Australia consumer confidence, CPI
- Hungary Rate decision
- US Conference Board consumer confidence
- UK public finances, public sector net borrowing
- Japan department store sales
- Vietnam industrial production, retail sales, trade, CPI
- Turkey real sector confidence
- Spain PPI
Wednesday, Jan. 26
- FOMC Rate Decision: The Fed may stop bond purchases and set up a March liftoff
- US new home sales, wholesale inventories
- BOC Rate decisions: May raise rates 25 bps to 0.50%
- Poland GDP
- China industrial profits
- New Zealand trade, credit card spending
- Philippines agricultural output
- Japan PPI services, leading index
- Thailand capacity utilization, manufacturing production index
- Singapore industrial production
- Poland unemployment
- Russia CPI, PPI
- Switzerland Credit Suisse survey expectations
- Spain mortgages
- EIA Crude Oil Inventory Report
Thursday, Jan. 27
- US Q4 Advance GDP Annualized Q/Q: 5.8%e v 2.3% prior
- US initial jobless claims, durable goods
- European Central Bank’s Edward Scicluna speaks at a European Savings and Retail Banking Group event
- Norway’s sovereign wealth fund releases key figures for 2021
- Turkish central bank releases its quarterly inflation report
- Hungary Rate Decision: Expected to raise interest rates by 30 basis points to 2.70%
- Hong Kong Trade
- Mexico Trade
- Switzerland Trade
- New Zealand CPI
- Spain Unemployment
- Singapore Unemployment
- South Africa rate decision: Expected to raise rates by 25 basis points to 4.00%
- South Africa PPI
- China industrial profits
- Japan machine tool orders
- Australia Westpac leading index, Bloomberg economic survey, import-export price index
- Russia gold and foreign reserves
- Germany consumer confidence
Friday, Jan. 28
- US consumer income, University of Michigan consumer sentiment
- German GDP
- France GDP
- Sweden GDP
- Eurozone economic confidence, consumer confidence
- Singapore Unemployment
- Sweden Unemployment
- Norway Unemployment
- France PPI
- Australia PPI
- New Zealand consumer confidence
- Japan CPI: Japan (Tokyo)
- Thailand forward contracts, foreign reserves
- Turkey economic confidence
- South Africa monthly budget balance
- Italy economic, manufacturing, and consumer confidence
Sovereign Rating Updates
- Hungary (Fitch)
- Ireland (Fitch)
- Finland (Moody’s)
- Austria (DBRS)