Brexit day, Bank of England eyes cut, FAANG earnings on tap

Brexit

At long last, after more than three and a half years and much political and market turmoil, Britain will finally leave the European Union on Friday, January 31st at 11:00 GMT. Bongs or not, there will be celebrations and commiserations in equal measure. For the pound, the focus now is on the trade deals with the EU and the US – at Davos last week it was made clear this is not going to be easy.

Bank of England to cut?

Market pricing suggests a roughly 50/50 chance the Bank of England will cut rates by 25bps to 0.5% on Thursday. Whilst hard economic data prior to the election showed a softening in activity, surveys since the Tory win have improved.

Weak inflation – which rose just 1.3% against 1.5% in November – could swing it for the doves. CPI inflation rates are at their lowest since 2016. There is a sense the Bank doesn’t want to get behind the curve of market expectations and is seeking to get a jump on markets whilst still teeing up the cut. It would be following the Fed’s playbook in cutting early in order to prevent a downturn.

Tesla’s record run faces test

Shares in Tesla have enjoyed a remarkable run up to record highs, valuing the company at $100bn. But will the fourth quarter numbers deliver on the promise?

Influential analyst Dan Ives at Wedbush thinks the company will at least meet expectations. He says: “While Tesla shares remain on a historic rally heading into earnings, the bull party likely continues as the aggressive trajectory of Giga 3 production and demand out of Shanghai look very strong out of the gates and is the catalyst to move our price target from $370 to $550 ahead of earnings”.

Apple earnings

Apple has also been making new record highs as it gears up to report its fiscal first quarter earnings. This is always Apple’s strongest as it chalks up the holiday season and new iPhone models. We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward.

New Fed makeup

No change expected from the Fed – don’t expect Powell to do anything other than signal he can’t imagine hiking again. A new makeup of the voting membership of the FOMC will provide some interest but is unlikely to change things materially – hawks Eric Rosengren and Esther George, along with doves Charles Evans and James Bullard, are set to depart. They will be replaced by arch dove Neel Kashkari, the more balanced Robert Kaplan and two more hawkish-leaning governors, Loretta Mester and Patrick Harker.

Key Events

(All times GMT)

09.00 GMT 27-Jan Germany Ifo Business Climate
00.30 GMT 28-Jan Australia NAB Business Confidence
13.30 GMT 28-Jan US Durable Goods Orders
15.00 GMT 28-Jan US CB Consumer Confidence
After-Market 28-Jan Apple – Q1 2020
23.50 GMT 28-Jan Bank of Japan Summary of Opinions
00.30 GMT 29-Jan Australia Inflation Rate
07.00 GMT 29-Jan Germany GfK Consumer Confidence
15.30 GMT 29-Jan US EIA Crude Oil Stocks Change
19.00 GMT 29-Jan Federal Reserve Interest Rate Decision
After-Market 29-Jan Microsoft – Q2 2020
After-Market 29-Jan Facebook – Q4 2019
After-Market 29-Jan Tesla – Q4 2019
08.55 GMT 30-Jan Germany Unemployment Rate
10.00 GMT 30-Jan Eurozone Business & Consumer Confidence Surveys
12.00 GMT 30-Jan Bank of England Interest Rate Decision & Inflation Report
13.00 GMT 30-Jan Germany Preliminary Inflation Rate
13.30 GMT 30-Jan US GDP Growth Rate (Q4)
15.30 GMT 30-Jan US EIA Natural Gas Stocks
After-Market 30-Jan Amazon – Q4 2019
10.00 GMT 31-Jan Eurozone Preliminary Q4 GDP
13.30 GMT 31-Jan US Personal Income and Personal Spending