Week Ahead – Earnings to dominate

Big tech in focus

Earnings season is up and running and next week will see some huge names reporting on the fourth quarter including Facebook, Apple and Tesla. Covid-19 is becoming more of a focus for investors as lockdowns take their toll and it becomes clear that restrictions won’t be easing any time soon.

Fed to reiterate support for economy

UK economy in for a rough ride

Japanese data eyed as Olympics rumours spread

Country

US

The main event in the US is the Fed’s policy meeting.  After several months of ultra-accomodation, the Fed seems to be inundated with questions on when is the time to taper.  Fed Chair Powell earlier in the month signal now is not the time to talk about exiting.  The Fed will likely reiterate their support for fiscal support and remind markets of the short-term risks.  Inflation signs have picked up but are not yet at a worrisome level.  

Big tech has led the recent charge higher for US stocks and Wednesday after the close will likely let us know if investors are still on board.  Huge earnings will come from Facebook, Apple and Tesla.  

US Politics

President Biden quickly tries to deliver on his national strategy to combat COVID-19.  Some states are trying to ramp up more aggressive testing and makeup for shortfalls with vaccines.  Negotiations also begin between Democrats and Republicans on Biden’s $1.9 trillion proposal for a stimulus relief package.  

EU

There were no surprises from the ECB after its January meeting, with the central bank reaffirming its commitment to supporting the economy through the crisis, acknowledging the risks posed by the new strains and lockdowns. The ECB announced a raft of new measures in December so further stimulus isn’t likely any time soon.

Next week is mostly tier two and three data, including flash GDP readings from Spain and France. Ifo/ Gfk surveys and unemployment data from Germany are also noteworthy. We’ll also hear from Christine Lagarde on Monday.

UK

The January lockdown has dealt another blow to the economy, far more so than November given the added severity. Cases are coming down though and have been for two weeks but reports appear to be suggesting the country isn’t coming out any time soon. And when it does, it will be very gradual. It could be the summer until everything is up and running again.

The PMIs suggest the economy is in for a rough ride over the coming months. The only data of note next week is the jobs report for November, with the unemployment rate seen jumping to 5.1%.

Turkey

The CBRT reaffirmed its commitment to tight monetary policy at the January meeting, a clear sign of its determination to keep financial markets on board. This comes after President Erdogan once again repeated his long-held view that higher interest rates spur inflation. This will make investors increasingly nervous if the President is believed to be interfering with monetary policy. It won’t take much for them to flee once again and remains a major downside risk for the currency. 

China

The “Jack’s back” China tech rally has fizzled quickly on both the Mainland and Hong Kong. Government remains vocal about antitrust restrictions on Alibaba and Ant Financial with the latter’s valuation plummeting. China investors appear nervous about valuations at these levels.

China has widened lockdowns outside of Beijing and Hong Kong has locked down part of Kowloon weighing on China markets. An escalation will weigh on Greater China equities next week. 

China 1 and 5-year Loan Prime Rates were unchanged although the PBOC appears to be quietly reigning in liquidity via the repo market. Should keep the Yuan firm at present levels as leaving US events to dictate EM direction.

Little sign of President Biden’s approach to China. Most of the potential bad news is baked in here from Trump, and markets seem unconcerned in China for now.

India

Final 2020 GDP released on Friday. Overshadowed by increasing concerns over Non-Bank Financial sectors bad debts. Persistently high inflation (notably food) threatens to temper India’s post-Covid recovery. India markets will move to the nuances of US stimulus progress this week and the FOMC. 

Australia & New Zealand

Covid-19 fears have receded as an outbreak in NSW brought under control and Brisbane and Victoria State report no new cases.

Data highlights include Official Inflation and NAB Business Confidence but markets in Australia are moving to external events. Namely US fiscal stimulus and the FOMC this week.

AUD/USD and NZD/USD have recovered their poise as markets loaded up on global recovery/US stimulus positioning. Both are acutely vulnerable to signs that Senate Republicans will filibuster the stimulus package.  

Japan

Bank of Japan unchanged as expected, lifted 2021 GDP outlook. Markets have taken that with a grain of salt. Retail Sales, Tokyo CPI and Industrial Production all expected to print lower with Japan’s lockdown lite another blow to the domestic economy.

External factors aside, rumours are swirling that the Tokyo Olympics are going to be cancelled. That would be a strong short-term negative for Japanese markets and will see 2021 GDP growth revised lower.

USD/JPY fell after a pre-BOJ spike in JGB’s and an easing of US 10-year yields. USD/JPY is now in the middle of its one-month 102.50 to 104.50 range. Next direction dictated by US yields next week and the tone of the FOMC meeting.

Key Economic Events

Saturday, January 23rd

– Italian PM Conte is under pressure to broaden support to regain his senate majority.

– The South African ruling party’s executive committee has a three-day conference to discuss policy priorities.

Sunday, January 24th

– No events

Monday, January 25th

– Chinese President Xi Jinping, French President Macron, and German Chancellor speak at the World Economic Forum’s “The Davos Agenda 2021.” The summit last through January 29th.

– Hungary’s central bank hosts its annual conference online.  Governor Matolcsy, PBOC Governor Yi Gang and ECB Chief Economist Lane are expected to speak.

– ECB Executive Board member Panetta speaks at the 50th anniversary of Italian Society of Financial Analysts.

– EU foreign affairs ministers are scheduled to discuss current issues affecting the bloc.

– India President Ram Nath Kovind will address the country on the eve of Republic Day.

Economic Data

Singapore CPI

Tuesday, January 26th

– The FII Institute hosts 4th edition of the Future Investment Initiative (FII) on January 27-28.

– ECB Governing Council member Centeno participates in an online panel discussion hosted by the CFA Institute about the Portuguese EU presidency.

– The IMF releases its latest World Economic Outlook.

Economic Data

US FHFA house price index, S&P CoreLogic Case Shiller house price index, Jan Conference Board consumer confidence: 88.8 estimate v 88.6 prior

Mexico retail sales

New Zealand credit card spending

Hungary rate decision: Expected to keep interest rates unchanged

South Korea GDP

UK unemployment, jobless claims

Japan PPI services

Singapore industrial production

Hong Kong trade

Wednesday, January 27th

– The Fed wraps up their two-day policy meeting and is expected to reiterate they won’t raise interest rates unless they see troubling signs of inflation.  Powell should welcome President Biden’s $1.9 trillion economic relief package.  No changes are expected with interest rates or QE. 

– The ECB’s Philip Lane speaks at a online event in Brussels hosted by the Bruegel think tank, called “In search of a fitting monetary policy: the ECB’s strategy review.”

– Mega-Cap Tech earnings from Tesla, Facebook, and Apple after the close.

Economic Data

US Dec durable goods orders: 1.0% estimate v 1.0% prior

EIA crude oil inventory report

South Korea consumer confidence

Australia CPI, NAB business conditions, Westpac leading index

France consumer confidence

China industrial profits

Poland unemployment, GDP

Japan leading index

Thursday, January 28th

– Hearing on “U.S.-China Relations at the Chinese Communist Party’s Centennial”.  The hearing will evaluate the state of the U.S.-China relationship, the Chinese Communist Party’s goals in the year of its centennial, and the implications for the United States.

– ECB Executive Board member Isabel Schnabel speaks at an LSE event.

Economic Data

US initial jobless claims, Q4 Advance GDP: 4.3% estimate v 33.4% prior, wholesale inventories, leading index, new home sales

Canada building permits

South Korea business survey

New Zealand trade balance

Japan retail sales

Germany CPI

Italy manufacturing/consumer confidence

Spain unemployment

Singapore unemployment

Friday, January 29th

– Dallas Fed President Kaplan speaks at an energy forum hosted by the North Dallas Chamber of Commerce and Texas Oil & Gas Association.

Economic Data

US Dec Personal Income: 0.1% estimate v -1.1% prior; Spending: -0.5% estimate v -0.4% prior, MNI Chicago PMI, University of Michigan sentiment, pending home sales

US Baker Hughes rig count

Canada: GDP, industrial product price

Mexico GDP

France GDP

Spain GDP

Turkey trade balance

Japan CPI, jobless rate, housing starts, industrial production

Australia PPI, private sector credit

Germany Q4 GDP Q/Q: 0.0% estimate v 8.5% prior

South Africa money supply, trade balance

Thailand Current Account Balance, trade data

Hong Kong Q4 Advance GDP Y/Y: -2.6% estimate v -3.5% prior

India GDP annual estimate Y/Y: -7.4% estimate v -7.7% prior

Sovereign Rating Updates

– Germany (Moody’s)

– Austria (DBRS)

– Ireland (DBRS)

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