This Week In Markets: 23rd - 27th Jan 2023 (Microsoft, Tesla Earnings, US GDP, PMI Preview)

Okay, gong hei fat choy to any of our Chinese followers, a happy new year. Hope you all had a fantastic weekend. Let's have a look what we can expect in markets this week. We're going to talk a little bit about the China Lunar New Year. We're also going to talk about US earnings really picking up pace this week, and we're also going to talk about some of the data points coming out, namely then you've got the flash PMIs, the Bank of Canada rate decision, US GDP, and core PCE all due this week. So First of all, let's talk about this Chinese New Year, the mass movement of people obviously on the ongoing Lunar New Year holiday period, and the fear that it might spread further the COVID outbreak being experienced in China at the moment, where we have seen numbers pick up on the U-turns they've made with their zero tolerance policy. Now, one of the things that came out the weekend was this, which was a report citing a prominent government scientist saying the possibility of a big COVID-19 rebound in China over the next 2 to 3 months is remote, as they anticipated around 80% of the population have been infected already, therefore immune. Now, I would definitely go as far as to say that this is a government scientist, so I don't think it's unusual for them to be saying this type of thing as part of a kind of PR containment measure, particularly when undoubtedly numbers are probably going to rise in the coming weeks, given the fact, of course, that China estimates around just shy of 1.2 billion people will be traveling during this year's Spring Festival. Remember, the New Year in itself means complete lockdown, kind of— well, not lockdown, I shouldn't use that word— bank holidays in China, meaning that all their, their markets are closed. A 7-day-long state holiday starts really from today. The Chinese government has discouraged travel by enforcing stricter lockdowns, enacting some stringent testing around this particular time given its sensitivity on the mass migration of people. But nonetheless, it's like to keep an eye on going further forward in time. Probably won't really get to see, um, the results of that for another few weeks or so. Couple of other things then. Earnings season, I mentioned it briefly, and the reason why is because this week and next week really is the bulk of the volume of the companies reporting. You've got over 50% of the S&P 500 this week. The ones to watch out for are Tuesday, you've got Microsoft, Verizon, Johnson Johnson. If I flip over here, maybe you could see it a bit more clearly. You've also got Microsoft, the big tech giant, first out of the chute, if you like, ahead of Meta, Amazon, the others. They're not coming till next week. They're going to be reporting after close on Tuesday. You've then got Boeing, AT&T, ASML on pre-market Wednesday, Tesla aftermarket, always one to watch. And then you've got Intel, Visa aftermarket Thursday, with Chevron, Amex, and others on Friday. So definitely keeping an eye on earnings season overall. 11% of the companies have reported their actual results thus far for Q4, um, 2022 to date. Of those companies, 67% have reported actual EPS above estimates. That might sound good, but against a 5-year average, that's actually down about 10 percentage points and below the 10-year average of 73%. So definitely a reflection of some of the misses that have been happening there comparative to previous years gone by. The other thing, just on a macro perspective, because it has been relatively quiet on that front overall, and the weekend's news was this: Interesting piece coming out of the Wall Street Journal, and in particular because of the author Nick Timoros. I'm sure I've said that incorrectly, so I apologize, Nick. But he is what we call in the market a Fed watcher, and these are the informed ear, if you like, of the central bank uses an indirect way to communicate to the market via these, these kind of well-selected journalists. And this chap is one of those. So what he says basically is mustard. It's high quality in terms of the source, even though we know that it's not the Fed or Powell saying this. We kind of read between the lines that it is. So in this case, one of the things here is saying is that the Fed officials are preparing to slow interest rate increases for the second straight meeting, and the debate on how much then higher to raise them after gaining more confidence in inflation will ease further this year, as we've seen with various data points of late. They could begin deliberating at the Jan meeting, so the end of this month is when the meeting happens. Their announcement comes on the 1st of Feb gathering as how much softening that there's been in the labor demand, spending, and inflation that they would need to see before pausing rate rises then in the spring. So yeah, a very interesting piece, but not too off-piste of what the market's been kind of pricing at this point in time. Let's take a look at the week ahead then, because there is quite a few things going on. I'm going to kick off then in relative chronological order. So, uh, X-ing out Monday where things are pretty quiet, things really start to pick up from Tuesday onward. You've got the various flash PMI numbers, uh, the flash readings always being the ones the market's most sensitive to. This is for the month of January, so we get the full sweep— UK, Eurozone, the various European countries, and the US. The service sector is forecast to have moved back above the 50 mark when talking about Europe, indicating a majority of businesses reporting an expansion compared to the prior month. The manufacturing PMI is expected to remain below that threshold but still have risen from Jan compared to December. Um, till talking about then Wednesday, we've got German IFO. That is the soft sentiment survey, forward-looking then that the institute would be asking companies to operate in a variety of different sectors in Germany about how do they feel about economic conditions, about the 6-month horizon and so forth. So a good gauge to see where heads are at in the eurozone in context of the current economic climate. And then you've also got the Bank of Canada rate decision. Uh, they're said to be getting close now to the endpoint of their rate hiking phase. Inflation is showing some signs of cooling off more recently, but the jobs market remains pretty hot. and therefore most analysts, including here this table you're looking at from ING, are expecting them to deliver another 25 basis point rate hike on the 25th of January, this Wednesday. Then looking further on, you've got one of the main data points of the week, US Q4 GDP. Obviously now we're into January of 2023, so it's going to be particularly interesting. The consensus estimate then is that US GDP will print at 2.6% in the first 3 months to December 31st, according to a poll from Bloomberg. That would mark a shift down then from 3.2% that we've seen prior. So here, just to give you a bit of a sense, so starting to see some of that slowdown coming in towards the back end of last year. And of course, the, the jury's out on whether or not we're going to have a recession in the US. Banks like GS Goldman saying that there's only around a 35% probability. Other banks a bit more aggressive on their outlook that we are going to indeed fall into recession in the coming months in the, in the US. The other thing then, going back to the calendar, um, included in the GDP release will be the Personal Consumption Expenditures Price Index, and that will reflect changes in the price of goods and services. That the data is expected to show an increase around 1.7%, down from 2.3%, and that's a particularly one that the market's sensitive to, to looking out for, of course, um, just given the, the overarching focus on inflation. You've also got durable goods coming out on Thursday out of the US. Analysts at ING note that they were likely to be strong, and that's purely really down to a Boeing large order they received, led by United Airlines, who ordered more than 200 Boeing 737 MAXs and 787 aircraft. X-ing that out, the number's really not as good as that's likely to be on the surface level. And then you've got new home sales as well. They'll likely suffer as a lagged response to the downturn in mortgage applications that we have been seeing of late. No Fed speakers at all. They are in their blackout period now ahead of that meeting that we just mentioned from that Wall Street Journal article. So yes, there could be more leaks to come through various press sources like Bloomberg or, or the Journal. So just keep your eye out for— but overall no major Fed speakers will be formally at least speaking. And then, yeah, as I said earlier, you do have the core PCE price index coming out on Friday, expected to show relatively benign 0.2% month-on-month reading. And that should then confirm the easing of the trend in price pressures that we've been observing as of late. And that is it. So hopefully that was useful. Any questions at all, feel free to drop me a comment on the video. Otherwise, don't forget to like and subscribe, and I'll see you next time. Take care.