LIVE MARKETS A forecast for the U.S. earnings season
- STOXX 600 loses 0.7%
- Wall Street tick down
- Hawkish Fed weighs on markets
- UK GDP better than expected
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A FORECAST FOR THE U.S. EARNINGS SEASON (1215 GMT)
The earnings season is starting in the U.S. and one wonders whether Q4 results might shift the focus of investors away from central banks’ tapering and the pandemic.
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“We expect a positive quarter, with an earnings beat of 7 percentage points resulting in earnings growth of 30% over the prior year,” Mark Haefele, Chief Investment Officer, UBS Global Wealth Management says about the S&P 500 earnings season.
“Guidance from companies also looks set to point to continued demand strength in 2022 even if omicron is disrupting some businesses right now,” he adds.
UBS says it retains a “bias for cyclical parts of the market, including energy and financials, balanced by exposure to the attractively valued but more defensive healthcare sector.”
It recalls that “so far, only 20 S&P 500 companies have reported their financial results, but 90% of them are beating sales estimates and 70% are beating earnings estimates.”
Furthermore, getting back to central banks, “since 1983, the S&P 500 has risen 5.3% on average in the three months before the start of Fed tightening.”
IF A UK PM FALLS, DO MARKETS HEAR A SOUND?(1115 GMT)
This week has been pretty horrendous for Boris Johnson, embattled in the now infamous “partygate” and struggling to save his premiership.
The good news for his country though is that the outrage expressed through the tabloids and opposition leaders have had little impact on UK PLC.
The pound is on a roll and is on track for a fourth consecutive week of gains versus the dollar and a sixth week against the euro.
London’s benchmark stock index (.FTSE) has also handsomely outperformed the pan-European STOXX 600 by about 3% since the start of the year.
This morning is no different with UK stocks leading European bourses as data showed that Britain’s economy grew strongly in November and caught up to where it was before the country’s first lockdown.
Still, many economists are cautious on the outlook, irrespective of Johnson’s fate.
“Rising prices and rising interest payments, as well as the expected rise in national insurance due to take effect this year, could start to threaten the economic recovery we’ve been witnessing”, commented Dan Boardman-Weston, CIO at BRI Wealth Management.
UBS GWM economist Dean Turner also believes inflation remains a big issue.
“Risks clearly remain to the upside for the time being, which will keep the Bank of England in a hawkish mood, with further hikes likely in the months ahead”, he wrote.
And next week’s data is also expected to make the case for another BoE rate hike.
“We expect Tuesday’s numbers to illustrate tight labour market conditions, and the inflation data to show that price pressures continued to stay strong in December”, argued Investec economist Philip Shaw who expects a 0.25% to 0.5% rate hike in February.
Interesting to note that while markets are clearly pricing a February rate hike, it’s not an unanimous view among economists.
Modupe Adegbembo, an economist at AXA IM, believes the poor economic visibility may keep the Old Lady of Threadneedle Street on its toes.
“Given the uncertainty over activity – combined with the fact that the MPC has already taken a first step in raising interest rates – we expect the MPC to keep rates unchanged at 0.25% in February penciling in the next hike only in May”, she said in a note this morning.
UK economy finally bigger than before pandemic in November read more
UK police say no probe yet into parties at PM’s house during COVID-19 lockdown read more
TIMELINE-Lockdown party allegations facing UK PM Johnson read more
EUROPE’S STOXX SET FOR SECOND WEEKLY DECLINES (0830 GMT)
European stocks sink and are set for a second consecutive weekly declines after the U.S. central bank’s fresh signals it is set to raise interest rates in March.
Tracking weaker global stock markets, the pan-European STOXX 600 index (.STOXX) is down 0.8% with tech stocks (.SX8P) leading the losses, down more than 1%.
In terms of single stock, the top faller is EDF (EDF.PA). Its shares slump around 20% and are heading for their worst day ever, after being ordered by the government to sell more of its cheap nuclear power to smaller rivals to keep electricity prices down.
LET’S TALK ABOUT STERLING (0801 GMT)
Let’s take a break from just how quick is the Fed going to slam on the brakes to contain inflation and talk about sterling.
The pound is proving to be one of the best performing major currencies in the early days of 2022. It’s trading near its highest levels in over two months above $1.37 , thanks to signs the Omicron COVID surge is abating and on expectations that UK interest rates could rise again as soon as February.
Data on Friday shows Britain’s economy grew a faster-than-expected 0.9% in November. read more
Yet, as week draws to an end, there’s a question mark over how long the rally will last given rising political uncertainty. Prime Minister Boris Johnson’s leadership is in the balance as he faces calls to resign from some in his party over Wednesday’s admission that he attended staff drinks during the May 2020 lockdown. Fresh revelations about parties in Downing Street were being reported on Friday. read more
If the number of bank research notes this week reminding clients of the rules of a potential leadership challenge to Johnson are anything to go by, sterling bulls be warned.
At the Fed, Governor Lael Brainard became the latest and most senior U.S. central banker on Thursday to signal that rates will rise in March to combat inflation. read more
Asian shares took a beating from rate-hike unease; Japan’s Nikkei fell 1.3% (.N225). European shares are tipped to open lower although U.S. stock futures are moving up .
U.S. 10-year Treasury yields are slightly higher at 1.73% and the dollar index is near two-month lows — a sign that tighter policy is already well priced into the greenback now .
December U.S. retail sales numbers out later in the day is the next focus.
Lastly, China Evergrande shares (3333.HK) edged up after the world’s most indebted developer secured a crucial approval from onshore bondholders to delay payments on one of its bonds as more developers race to avert defaults. read more
Key developments that should provide more direction to markets on Friday:
– China posted a record trade surplus in December and in 2021 read more
– Germany 2021 GDP
– Riksbank Governor Stefan Ingves
– ECB: President Christine Lagarde
– Fed: Philadelphia President Patrick Harker; New York President John Williams
– US retail sales Dec/industrial production/inventories/University of Michigan survey
– US earnings: BlackRock, JPM, Wells Fargo, Citi
EUROPEAN FUTURES SLIP AFTER FED’S FRESH RATE HIKES SIGNALS (0730 GMT)
European shares look set for declines on Friday after Federal Reserve officials signalled that rates will rise in March. read more
Asian shares also took a beating as markets brace for tighter monetary conditions.
In the meantime, European companies have started to release quarterly results: German business software group SAP (SAPG.DE) said Q4 revenue from its cloud computing business jumped 28%. read more
While British electricals retailer Currys (CURY.L) edged down its full year profit guidance after what it called a “challenging” technology market at Christmas with uneven customer demand and supply disruption. read more
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