Week Ahead – Profit Season is upon us

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A welcome distraction

It was quite a start to the year, with Omicron fears fading and being replaced again by interest rate anxiety. This could be the theme for months to come, as policymakers are forced to take inflationary pressures more seriously in the hope that a little now will avoid the need for much later.

Profit season can provide a welcome distraction at a time when fear has once again become a dominant driver of the markets. While the uncertainty of inflation is a major risk, it should be remembered that the economy is in a very good position and the reporting season, which kicks off next week, should remind you in due course.

Finally, it should be noted that there are currently various other factors of volatility in the markets and Russia is only involved in most of them. Although Putin did a sneaky dig at CBRT in his annual speech while praising his own central bank’s approach to inflation. President Erdogan does not appear to have too many allies in his quest for low inflation through lower interest rates.

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The coming week will feature a very hot report on inflation, the banks kicking off the earnings season, the US-Russian talks and a group of Fed speeches. Inflation is not slowing down and will continue to worry the Fed. Headline year-over-year inflation is expected to drop from 6.8% to 7.1% on Wednesday, a record for nearly four decades. The last trading day of the week is filled with economic releases which should show a deceleration with retail sales, the import price index, industrial production and consumer sentiment.

EU

The data for next week consists mostly of level two and level three releases that will have little impact on the central bank in the coming months. The pressure is mounting after inflation hit a new high in December. Traders will look for any sign that policymakers will give in to the pressure, although they have been assured so far that inflation is transient.

UK

The tightening cycle began in December and traders will continue to monitor the data as markets assess four more hikes this year. But next week is devoid of any level one releases, most notable being the NIESR GDP estimate on Monday and the official monthly GDP reading on Friday.

Russia

Next week’s high point on the data front is inflation on Wednesday, with the CPI edging down to 8.2%. It’s still more than double its 4% target but is heading in the right direction after an aggressive series of central bank rate hikes.

The focus will remain on other activities as far as Russia is concerned, as is so often the case. Whether it is activity at the Ukrainian border, gas supply to Europe (or its absence) or involvement in Kazakhstan.

South Africa

Next week promises to be calm, with manufacturing output being the only notable economic release.

Turkey

Turkey continues to favor unconventional approaches to support the currency as it seeks lower interest rates at all costs. So far, this has happened in the form of soaring inflation (now at 36%) and a large chunk of foreign exchange reserves as she tries to manipulate the currency and support state-owned enterprises.

The depletion of reserves is not sustainable and although the lira is at an all-time low, it has slipped over the past two weeks. Erdogan is more and more desperate and does not seem in the mood to change course.

China

Chinese real estate developers will dominate the weekend’s news with Evergrande (OTCPK: EGRNF) in a race to renew CNY 4.5 billion of locally-denominated debt by this weekend. How this story unfolds will determine whether Chinese stocks continue to retreat or recover on Monday.

In addition, the government appears to be moving towards a separate treatment of debt used to buy out weak promoters by SOEs and official debt ratios. If confirmed to be correct, it is potentially bullish for China / HK stocks.

China’s CPI on Wednesday won’t move the needle, but if the official trade balance falls on Friday, it could weigh on local stocks.

Watch for expanding city closures across China as Omicron proves stubborn to remove.

India

The Indian rupee is holding up surprisingly well against the liquidation of other Asian currencies. The post-Omicron sentiment rally renewed hot money inflows into India, supporting INR and local stocks. Look at the number of cases in India, however, it is increasing rapidly and will be a test of the premise that countries without vax RNA will also see fewer hospitalizations. Potentially negative if incorrect.

Inflation on Friday presents upside risks that could be a negative stagflationary factor for INR and Sensex through the end of the week.

Australia

No significant data. Watch for increasing statewide restrictions as Omicron cases soar. More severe restrictions could be negative for equities and AUD.

The AUD is fueled by cautious risk sentiment in currency markets as US yields strengthen following tightening Fed expectations.

New Zealand

No significant data.

NZD recedes on Fed tightening sentiment according to AUD.

Watch for headlines from Omicron Community Transmission, which could be negative in the near term for NZD and local stocks, and the RBNZ hike in February could be postponed… again.

Japan

No significant data this week. The USD / JPY remains at the mercy of the US / Japan rate differential. That widened this week as US yields soared, pushing USD / JPY to 116.00. The finance ministry has started to “monitor exchange rate rhetoric,” signaling concern over the pace of the decline.

The Nikkei continues to show a strong correlation with the directional movements of the Nasdaq. The BoJ has quietly indicated this week that it will not seek to widen its balance sheet. The next JGB auction this week, if poorly supported, could be negative for equities in the near term.


Economic calendar

Saturday January 8

Events

Atlanta Fed Chairman Bostic and ECB Schnabel speak at the American Economic Association / Allied Social Science Association virtual annual meeting.

Sunday January 9

Events

Mann from BOE speaks at AEA Virtual Meeting

Beginning of US-Russian bilateral negotiations in Geneva

Iraqi parliament meets

Monday January 10

Economic data / Events

Wholesale inventories in the United States

Atlanta Fed President Raphael Bostic speaks at the Rotary Club of Atlanta

Building permits in Australia

Euro zone unemployment

unemployment in Italy

Tuesday January 11

Economic data / Events

Confirmation hearing of Fed Chairman Jerome Powell at the Senate Banking Committee.

Kansas City Fed Chairman George speaks

Saint-Louis Bullard Fed Chairman speaks

Australian trade balance, retail sales

Mexico international reserves, industrial production

Manufacturing production in South Africa

Spain industrial production

Turkey current account

Wednesday January 12

Economic data / Events

US CPI, Fed Beige Book, WASDE Agricultural Report

China IPP, IPC

Speech by BOJ Governor of Japan Haruhiko Kuroda at the Branch Managers Meeting.

Industrial production in the euro area

Indian industrial production, CPI

CPI Russia

EIA Crude Oil Inventory Report

Thursday January 13

Economic data / Events

Initial Unemployment Claims in the United States, PPI

Hearing of the US Senate Banking Committee for Lael Brainard appointed Vice President of the Fed.

Richmond Fed Chairman Barkin speaks at an event hosted by the Richmond Chamber of Commerce.

Philadelphia Fed Chairman Harker speaks at the Philadelphia Business Journal’s economic event.

Chicago Fed Chairman Evans speaks at an event hosted by the Milwaukee Business Journal.

Turkey industrial production

Italy industrial production

Japan’s M2 money supply

New Zealand building permit

Norges Bank Q4 Survey on Bank Lending

Friday January 14

Economic data / Events

U.S. Bank Profit Season Begins: JPMorgan, Citigroup, Wells Fargo Report Before the Bell

New York Fed Chairman John Williams speaks at the Council on Foreign Relations.

US retail sales, business inventories, industrial production, consumer sentiment

china trade

India trade, wholesale price

IPC France

Japan IPP

Spain CPI

british industrial production

Original message

Editor’s Note: The bullet points for this article were chosen by the editors of Seeking Alpha.


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