Week Ahead: Q1 earnings season kicks off on Wall Street

Week Ahead

Earnings season gets underway on Wall Street as the big banks get the ball rolling this week. Meanwhile traders are looking at the latest inflation and retail sales figures from the US and a central bank interest rate decision from New Zealand taking place amid the country’s housing boom. 

Earnings 

 

Coming after fresh record highs for the S&P 500 and Dow and expectations for a major cyclical bounce back for the US economy in Q2 and Q3, this week marks the start of an important corporate earnings season for the market. April is historically a strong month for the market and traders will be looking to corporate updates to power further gains for stocks. However, the market is well priced for earnings to pick up this year already – in fact the 6% rise in the bottom-up EPS estimate for Q1 is the largest on record, according to FactSet. 

Big banks including JPMorgan, Bank of America, Morgan Stanley, Wells Fargo and Citigroup get the season off to the customary start. Financials have been on the up as bond yields rose in the first quarter and the sector has outperformed the broader market. 

In addition to the earnings updates and forecasts for the next quarter, market participants will be paying close attention to what the bank CEOs say about the outlook for the US economy and the recent uptick in bond yields which ought to be supportive of bank earnings. In his annual letter to shareholders sent last week, JPMorgan boss Jamie Dimon was very bullish on the US, saying the economic boom could easily run into 2023. Whilst he called stock market valuations are “quite high,” he said a multi-year boom may justify current levels. 

Inflation 

 

A big question facing the market right now is whether inflation is coming – prices are set to rise on a year-on-year basis as the base effects from the pandemic last year play out. But that is not the same as sustained inflation that could pressure central banks into raising rates before the recovery is complete. US CPI inflation figures are due on Tuesday. Last month’s 0.4% increase was in line with expectations but was the last ‘easy’ data point as base effects are set to take effect now. The Labor Department said its consumer price index increased 0.4% in February after rising 0.3% in January. For March the increase is expected to be markedly higher as sharp price declines at the start of the pandemic last year feed through the calculations. 

RBNZ rate decision 

 

No change expected to the cash rate of 0.25% and there are no updates to forecasts nor a press conference. However, the Reserve Bank of New Zealand meets amid a housing price boom and slowing momentum in economic indicators. The ANZ business survey released on Thursday showed confidence sliding further to –8.4 whilst details on the activity side were flat to weaker. Cost and inflation pressures were said to be ‘intense’ with pricing expectations hitting a new high on data going back to 1992. 

 

Major economic data 

Date  Time (GMT+1)  Market  Event 
Mon 12 Apr  15:30  CAD  BOC Business Outlook Survey 
  18:01  USD  US 10yr Bond Auction 
Tue 13 Apr  Tentative  CNH  China Trade Balance 
  13:30  USD  US CPI Inflation 
  18:01  USD  US 30yr Bond Auction 
Wed 14 Apr  03:00  NZD  RBNZ Rate Statement 
  10:00  EUR  EZ Industrial Production 
  15:30  WTI/Brent  US Crude Oil Inventories 
  19:00  USD  Fed Beige Book 
Thu 15 Apr  02:30  AUD  Australia Unemployment 
  13:30  USD  US Retail Sales 
  13:30  USD  Philly Fed Manufacturing 
  13:30  USD  US Unemployment Claims 
  15:30  Nat Gas  US Natural Gas Inventories 
Fri 16 Apr  03:00  CNH  China GDP 
  13:30  EUR  EZ Final CPI Inflation 
  15:00  USD  UoM Consumer Sentiment 

 

Key earnings data 

14-Apr  JPMorgan Chase & Co.  Q1 2021 Earnings 
15-Apr  UnitedHealth Inc.  Q1 2021 Earnings 
15-Apr  Bank of America Corp.  Q1 2021 Earnings 
15-Apr  PepsiCo Inc.  Q1 2021 Earnings 
16-Apr  Reliance Industries Ltd Dematerialised  Q4 2021 Earnings 
14-Apr  Wells Fargo & Co.  Q1 2021 Earnings 
12-Apr  Tata Consultancy Services Limited  Q4 2021 Earnings 
16-Apr  Honeywell  Q1 2021 Earnings 
15-Apr  Citigroup Inc.  Q1 2021 Earnings 
16-Apr  Morgan Stanley  Q1 2021 Earnings 
15-Apr  Charles Schwab  Q1 2021 Earnings 
15-Apr  BlackRock Inc.  Q1 2021 Earnings 
14-Apr  Goldman Sachs  Q1 2021 Earnings 
17-Apr  HDFC Bank Ltd Registered Shs  Q4 2021 Earnings 
15-Apr  U.S. Bancorp  Q1 2021 Earnings 
15-Apr  BB&T Corp Registered Shs  Q1 2021 Earnings 
16-Apr  PNC Financial Services Group Inc.  Q1 2021 Earnings 

 

Week Ahead: Republican convention fires starting pistol on Presidential election

Week Ahead

The Republican convention this week marks the end of the phoney war and start of the campaign proper in the race to the White House. After striking a record high last week, investors are eyeing a potential rise in volatility as the election approaches. Meanwhile there will be a lot of backwards-looking data to be released in the coming days that could move the markets.  

Republican convention fires campaign starting pistol 

The Republican convention will not only mark the starting pistol for this year’s presidential run, but also the race for the 2024 GOP candidate. Market attention will increasingly come around to the November presidential race with barely over two months left until polling day. Vix futures indicate investors are starting to position for more volatility as the election approaches. Find out all you need to know about the election and follow our special coverage.

Economic data to watch 

There is a lot of economic data to get through this week. New Zealand’s retail sales print gets us underway as markets open for the trading week. On Tuesday we are looking at a couple of tentatively scheduled events – the UK’s monetary policy report hearings and US Tresury currency report. Certain to happen that day is the US CB consumer confidence report. 

Wednesday sees the weekly crude oil inventories report as well as US durable goods orders and Australian construction activity. On Thursday the US weekly initial jobless claims number gets released, which has become the most-closely watched high frequency economic indicator. Look also at the pending home sales and preliminary (second estimate) GDP numbers. 

More US data rounds out the week on Friday with the Fed’s preferred inflation gauge, the core PCE price index; personal spending; University of Michigan consumer sentiment; and the Chicago PMI on the slate. 

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Earnings to watch 

Ad titan WPP reports it interim results for the six months ended June 30th on Thursday. The advertising giant is a useful barometer of economic confidence. Big brands have slashed marketing budgets to cope with pandemic and WPP has warned of the hit it will take this year. But rival Publicis reported a 13-% drop in second quarter like-for-like sales, which was well ahead of the –20% anticipated. Shares in WPP are down over 40% this year – could Publicis offer a clue as whether the stock may find a new course? We are also interested in recruiter Hays – which reports finals on Thursday and is often a great indicator as to the overall health of the labour market globally. 

Salesforce.com (CRM)  is expected to deliver earnings and revenue growth when it reports numbers for the quarter ended July on Tuesday. EPS is seen at $0.7 on revenues of $4.9bn. 

US inflation hot, stocks keep higher as bonds slip

Equities

US inflation was a little hot and certainly has a stagflation feel about it, but this won’t be a concern for the Federal Reserve in the slightest. CPI rose 0.6% month-on-month in July, unchanged from a month before and ahead of the 0.3% expected. Year-over-year, headline inflation rose from 0.6% to 1%, whilst core CPI was up 1.6% in July vs the 1.2% expected. Food prices were +4.6% YOY, with beef +14.2%.

Fed unlikely to worry if inflation heads higher

The Fed is going to become more relaxed about letting inflation run above its 2% target. Despite the indicators in the market like TIPs and gold prices suggesting that the massive dose of fiscal and monetary stimulus we have just had, combined with a supply constraint, the output gap is still huge and the economy will run well short of its potential for many years.

So that means the Fed should and could be relaxed about headline inflation running above 2% for a time, instead prioritising the employment level, but it also means inflation expectations can start to become unanchored as they did in the 1970s, which may have longer-term implications for the path of prices and relative values for gold and stocks.

In a nutshell, if inflation expectations lose their anchors then we are faced with a stagflationary environment like nothing we have seen for 50 years. High inflation, low growth for years to come is the unwanted child of a global pandemic meeting massive government intervention.

Treasury yields nudged up with the 5yr up to 0.307% from 0.269% and 10s up to 0.69%. Gold has largely held onto gains after a sharp turnaround this morning with spot trading around $1,935 after touching $1,949 this morning. Higher yields are bad for gold, but higher inflation is so good so the CPI numbers seem to be netting out for now.

EUR/USD moves off lows, SPX eyes all-time high

Earlier in the session, Eurozone industrial production rose over 9% in June but remains down 12% from pre-pandemic levels. EURUSD has moved up off its lows despite the print falling short of the 10% expected.

Stocks were well bid heading into the US session with Europe enjoying broad gains and the FTSE 100 leading the way at +1.5%. The S&P 500 is eyeing a fresh run at the all-time highs with the index only about 1.5% short; the scores on the doors are: record intraday 3,393.52, with the record close at 3,386.15.

The market came up a little short yesterday but you just sense bulls will push it over the line sooner or later. After yesterday’s reversal traders may be a little gun shy but the bulls have the momentum. The Nasdaq remains on the back foot pointing to the kind of rotation out of tech.

Oil heads higher after OPEC report

Crude oil rose with WTI (Sep) north of $42.50 after OPEC’s monthly report indicated the cartel will continue with production cuts for longer. In its monthly report, OPEC lowered its 2020 world oil demand forecast, forecasting a drop of 9.06m bpd compared to a drop of 8.95m bpd in the previous monthly report.

This report seemed to be quelling fears that OPEC+ will be too quick to ramp up production again. Specifically, OPEC said its H2 2020 outlook points to the need for continued efforts to support market rebalancing. Compliance was down but broadly the message seems to be that OPEC is not about to walk away from the market.

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