Week ahead: Fed set to announce tapering?

Week Ahead

All eyes are on the Federal Reserve and whether it will use this week’s September FOMC meeting to announce its long-awaited tapering of asset purchases. Meanwhile a hot inflation reading last week will have the Bank of England thinking about whether it should be pivoting to a more hawkish position.  

Fed to announce QE taper? 

Whilst markets do not expect the Federal Reserve to race towards tapering asset purchases, there is a broad consensus in the market that it will begin dialling back the pace of its QE programme from November. That means this week’s meeting may be an appropriate moment for the Fed to give the market fair warning. 

Last week’s CPI inflation clouded the outlook a touch – it was a little softer than expected, giving the Fed some more breathing space. More importantly, the very weak August jobs report suggests the Fed might not want to nail its colours to a November taper launch just yet. It could signal it still believes that tapering is appropriate this year without giving a fixed schedule. 

Investors will be most interested in how policymakers assess the pace of the labour market recovery, and whether they believe inflationary pressures are becoming less transitory than they thought. Close attention will be paid the latest round of economic projections for a guide on whether the Fed is changing its mind on the pace of inflation and growth. 

Bank of England responds to hot inflation print 

The Bank of England will need to respond to biggest jump in inflation on record when it convenes this week. Inflation accelerated to 3.2% in August from 2% in July, well above the central bank’s 2% target. Could this force the BoE to tighten monetary policy sooner than had been expected? A hawkish-sounding Bank of England would be a boost for sterling. 

Eco data to watch 

In addition to the above, markets will be on the hook for a raft of economic data releases this week, including Thursday’s round of flash PMIs for the euro area, UK and US. The Bank of Japan is due to meet, with governor Kuroda recently remarking that the central bank will further relax monetary policy such as by reducing interest rates, if necessary. 

Nike, FedEx earnings 

The earnings calendar is light but there are updates from Nike and FedEx among others. Nike posted very strong Q4 results in June, sending the stock to a record high. Q4 sales rose 96% against the year-ago quarter and were up 21% compared to 2019. Margins are also improving fast as the company’s pivot to supplying consumers directly pays off. “FY21 was a pivotal year for NIKE as we brought our Consumer Direct Acceleration strategy to life across the marketplace,” CEO John Donahoe said. But shares have come off lately amid worries about supply chain problems, with millions of units of lost production in Vietnam due to covid. 

“Over its history, Nike’s stock has been most tightly correlated with sales growth, so with growing evidence that sales will likely stall, we believe Nike’s stock will at best tread water until more clarity is had around its manufacturing issues, and at worst suffer from reduced sales guidance and ensuing multiple compression,” BTIG analysts said in a note downgrading the stock to neutral. 

Also look out for earnings from Adobe, General Mills and Costco. 

Major economic events 

Mon Sep 20  12:01am  GBP  Rightmove HPI m/m 
  All Day  JPY  Japan Bank Holiday 
  All Day  CNH  China Bank Holiday 
  7:00am  EUR  German PPI m/m 
  Tentative  EUR  German Buba Monthly Report 
  3:00pm  USD  NAHB Housing Market Index 
  All Day  CAD  Canada Federal Election 
  10:00pm  NZD  Westpac Consumer Sentiment 
Tue Sep 21  All Day  CNH  China Bank Holiday 
  2:30am  AUD  Monetary Policy Meeting Minutes 
  7:00am  CHF  Trade Balance 
    GBP  Public Sector Net Borrowing 
  11:00am  GBP  CBI Industrial Order Expectations 
  1:30pm  CAD  NHPI m/m 
    USD  Building Permits 
    USD  Current Account 
    USD  Housing Starts 
  2:00pm  CNH  CB Leading Index m/m 
  3:30pm  AUD  CB Leading Index m/m 
  Tentative  NZD  GDT Price Index 
Wed Sep 22  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Policy Rate 
  Tentative  JPY  BOJ Press Conference 
  2:00pm  CHF  SNB Quarterly Bulletin 
  3:00pm  EUR  Consumer Confidence 
    USD  Existing Home Sales 
  3:30pm  Oil  Crude Oil Inventories 
  7:00pm  USD  FOMC Economic Projections 
    USD  FOMC Monetary Policy Statement 
  7:30pm  USD  FOMC Press Conference 
Thu Sep 23  12:00am  AUD  Flash Manufacturing PMI 
    AUD  Flash Services PMI 
  All Day  JPY  Japan Bank Holiday 
  Tentative  EUR  German Import Prices m/m 
  8:15am  EUR  French Flash Manufacturing PMI 
    EUR  French Flash Services PMI 
  8:30am  CHF  SNB Monetary Policy Assessment 
    CHF  SNB Policy Rate 
    EUR  German Flash Manufacturing PMI 
    EUR  German Flash Services PMI 
  9:00am  EUR  Flash Manufacturing PMI 
    EUR  Flash Services PMI 
    EUR  ECB Economic Bulletin 
  9:30am  GBP  UK Flash Manufacturing PMI 
    GBP  UK Flash Services PMI 
  12:00pm  GBP  Bank of England monetary policy decision 
  1:30pm  CAD  Core Retail Sales m/m 
    CAD  Retail Sales m/m 
    USD  US unemployment Claims 
  2:45pm  USD  US Flash Manufacturing PMI 
    USD  US Flash Services PMI 
  3:00pm  USD  CB Leading Index m/m 
  3:30pm  Nat Gas  Natural Gas Storage 
  10:45pm  NZD  Trade Balance 
Fri Sep 24  12:01am  GBP  GfK Consumer Confidence 
  12:30am  JPY  National Core CPI y/y 
  1:30am  JPY  Flash Manufacturing PMI 
  7:00am  EUR  German GfK Consumer Climate 
  9:00am  EUR  German ifo Business Climate 
  3:00pm  USD  New Home Sales 



GameStop earnings look ahead


Meme stock favourite GameStop (GME) is set to report Q2 results after the market closes on Wednesday, September 8th. The stock, which was at the heart of the Reddit trading frenzy in January, is up more than 1,000% YTD and closed Tuesday’s session at $199, a loss of $3.45, or 1.7%, on the day.

Flush with the proceeds of a recent equity raising, the company has been tackling debt and seen encouraging sales progress, with growth across hardware, accessories and collectibles categories.

What should investors expect from GameStop earnings?

Markets expect losses to halve, with the company seen reporting a loss of $0.70 per share vs $1.40 per share seen in the same period a year ago. Revenues are expected to rise 20% year-on-year to  $1.1 billion.

In June the company said it would continue to suspend guidance for 2021 due to the pandemic, but said net sales were the best metric to follow. “The company’s second-quarter sales trends continue to reflect momentum, with May total sales increasing approximately 27% compared to last year,” the company stated.

Ultimately though the stock remains disconnected from fundamentals so the price action is more about expectations for the turnaround strategy. Given its propensity for volatility, traders should be willing to expect noisy price action around the results.

On the chart, we can see that after a run lower through June and July the subsequent rally has stalled and there is a clear loss of momentum to the upside. Bulls looking to break $230 to be encouraged at a return to March and June swing highs around the $340-350 level.

Chart showing GameStop price action on 08.09.2021.

Soft start to trading week for stocks, earnings season ahead

Morning Note

Stocks in Europe were weaker in early trade Monday, following a fresh record high being set on Wall Street on Friday as equity markets rebounded from a Thursday sell-off. The Dow Jones, S&P 500 and Nasdaq composite all rose by around 1% to set new all-time closing highs. European bourses by contrast are tripping well-worn ranges. Bond markets are steady with US 10s around 1.35%, oil a tad lower this morning, but WTI remains above $74. Gold holds above the $1,800 level for now. The dollar is steady this morning after a couple of big down moves in the previous two sessions.

In the US, the big banks kick off earnings season on Wall Street this week. Thanks to the vaccine roll-out that has facilitated a broad reopening of the US economy, unleashing an apparent torrent of pent-up demand, as well stimulus and other enhanced Federal payments, expectations are very high for Q2. We can ignore the year-on-year numbers and the % gains – this is all fully priced anyway.

Financials give us a pretty good steer for the rest of the season. Banks have been buoyed by the broad reflation/reopening rotation this year but in the last couple of months we have seen this trend moderate and a flattening in the yield curve is a drag. This could become more of a problem if the Fed starts to talk about tapering and hikes start to come into view. Do banks see any impact on net interest margin as the curve flattens out? Moreover, where do we stand on growth and the booming economy that JPMorgan boss Jamie Dimon said three months ago “could easily run into 2023”. And with peak growth already behind us, where does that leave equity markets: “While equity valuations are quite high (by almost all measures, except against interest rates), historically, a multi-year booming economy could justify their current price,” Dimon said in his last shareholder letter. Watch for how his views might have softened.

Investors will also be looking at share buybacks and dividends after the Fed gave all 23 major institutions the green light to up shareholder returns again. Trading revenues won’t be as strong as we have been used to, but loan loss provisions should continue to be written down, boosting headline EPS. Very strong numbers are expected, so banks have a lot of work to do and will require a major upside surprise this earning season.

It’s a busy corporate calendar in the UK this week. Wednesday sees Dunelm Q4 results after the company raised its full-year profit expectations back in May. Pent-up demand has been a boon, but we look for further guidance on how the company plans to adapt to reopening and a shift from consumers spending on homeware (lockdown favourite) to experiences/holidays.

Barratt Developments (BDEV) – FY21 trading update. Looking to see what one of the top UK housebuilders makes of the pricing in the market right now and reservation rates. Investors will also be looking for a guide on FY22 post the stamp duty holiday. Questions remain over whether the end of the stamp duty holiday and help to buy will lead to a shift lower in housebuilder shares, so this update will be useful for the broader market picture.

Also Thursday is a trading update from Hays – recent updates from Page and Robert Walters suggest a constructive backdrop for recruiters. Page recently reported a 2% rise in gross profit from the same quarter in 2019 and raised operating profit guidance for the year by up to 30% to between £125m n and £135 million.   The post-pandemic hiring boom should continue to offer support to results and the stock. Watch also the same morning for the UK unemployment and claimant count change figures.

Burberry – AGM Wednesday, trading update on Friday, coming off the back of the announcement of the departure of CEO Marco Gobbetti. This created near-term uncertainty about the leadership, corporate strategy and creative direction, but investors have not taken fright too badly. Goldman last week raised its rating on the stock to buy, raising the price target to 2,475p from 2,135p. A new CEO will allow a refresh and expectations are too low. The stock has significantly underperformed luxury peers. As noted previously, given the consolidation in the luxury sector, and the current valuation vs peers, it could be a target, so the stock should continue to trade with a slight bid premium. And whilst there are some pandemic-related issues still being washed out, Burberry remains a strong brand in the luxury space with room to appeal to a broader consumer base over the coming years.

On the economic data front, US consumer price index inflation on Tuesday, followed by the UK reading on Wednesday, are the key events this week.

First, the US. Last month’s report was a whopper: 5% annual inflation in May and 3.8% for the core reading – a 30-year high. Month-on-month showed cooling from +0.9% in Apr to +0.7% in May but remains elevated. Since then, however, we had the Fed sounding a little more attentive to inflationary risks and let it be known that it’s not going to let inflation get out of control. That’s capped yields which had been moving higher on expectations of rampant inflation – the reflation trade.  Anyway, the focus is not just on the Fed but whether inflation is here to stay – it’s probably too soon to make that call but I will be paying close attention to the core MoM reading for the best signal. It also about the types of assets, stock market sectors that should be doing well if inflation persists.  We will also be watching Fed chair Powell’s testimony in Congress this week.

In the UK, last time we got 2.1% and the Bank of England has said it’s ready to act if inflation goes too high. It does not have the same explicit AIT mandate. As noted on June 24th, the PMI report pointed to strong inflationary pressures that will take CPI above the bank’s 2% target. The question is how far above and for how long – and how does the Bank respond.  Governor Andrew Bailey has made clear the MPC won’t tolerate above-target inflation for long and whilst I thought the last BoE meeting in June was too soon to pull the hawkish card, I don’t think it will be long until it does.

Finally there is a Bank of Canada meeting this week and in the wake of a very strong jobs report on Friday it seems likely it will taper the CAD$3bn in weekly asset purchases.

Week Ahead: Fed meeting to assess inflation landscape

Week Ahead

With the G7 event in Cornwall wrapping up on Sunday, the Federal Reserve meeting is the big event in the markets this week, whilst traders will also be keeping a close watch on high frequency data such as unemployment claims, retail sales and manufacturing indices from the US. Meanwhile UK inflation data will be assessed for any signs of pressures building in prices that could nudge the Bank of England to tighten monetary policy earlier than thought. 


Wednesday’s statement from the Federal Reserve is not expected to feature any fireworks, but it is an important meeting as it will offer clues about the reaction function of the central bank to rising inflation fears. We know the Fed is happy to let inflation run a little hot over the summer as it pins everything on its employment mandate. So, labour market data is arguably more important than inflation numbers right now. On that front the last NFP jobs report was something of a Goldilocks number – not too hot to worry about an early taper of the Fed’s $120bn-a-month bond buying programme, but not so cool as to fret about the recovery. The truth is the Fed is looking at both and this meeting comes at a time of great uncertainty over whether inflation will indeed prove to be as transitory as policymakers believe. 

Minutes from the FOMC meeting in April had the Fed floating a trial balloon, as these indicated some policymakers are thinking about thinking about tapering asset purchases. “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the minutes said. Members of the FOMC also stressed the importance of “clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases”. Tentative – the question remains: when does the Fed think it’s hit the landing area for the economy, and does inflation take off in the meantime? This week’s meeting is not expected to deliver any surprises – the jobs numbers are positive right now but the labour market is some way off the Fed’s goal, whilst the inflation story is fairly well understood for now.

US economic data 

There is also going to focus on a batch of important high frequency data out of the US, including retail sales for May, producer price inflation and manufacturing indices for the New York and Philadelphia regions. Expectations for retail sales are heating up – last week the National Retail Federation raised its growth expectations for US retail sales in 2021 to between 10.5% and 13.5%. May should show a pick-up in sales after unexpectedly stalling in April as the boost from stimulus cheques faded. An acceleration is expected in the coming months thanks to a huge savings glut and the rapid reopening of the economy. 

UK inflation 

The Bank of England does not think inflation will run away, so Wednesday morning’s CPI print will be closely watched by GBP traders. Although it significantly upgraded its near-term economic forecasts and announced a form of ‘technical’ taper’ of bond purchases at its last meeting, the Bank’s outlook on inflation suggests it will be in no rush to raise rates this year. This is acting as a headwind for sterling – an above-forecast reading could be a tailwind. 


Major economic data 

Date  Time (GMT+1)  Event 
Jun 14th  10:00  EZ industrial production 
Jun 15th  07:00  UK unemployment  
  13:30  US retail sales, PPI, Empire State manufacturing index 
  14:15  US industrial production 
Jun 16th  03:00  China industrial production, retail sales, fixed asset investment  
  07:00  UK CPI inflation 
  13:30  Canada CPI inflation 
  15:30  US crude oil inventories 
  19:00  FOMC statement 
  19:30  FOMC press conference 
 Jun 17th  02:30  Australia unemployment 
  08:30  Swiss National Bank statement 
  10:00  EZ final CPI inflation 
  13:30  US unemployment claims, Philly Fed manufacturing index 
Jun 18th  tentative  Bank of Japan statement 


Key earnings data 

Date  Company  Event 
Jun 15th  Oracle Corp.  Q4 2022 Earnings 
  On The Beach  Interims 
Jun 17th  Adobe Inc.  Q2 2021 Earnings 
  Whitbread  Trading Update 
  Halfords  Finals 


Lloyds shares rally as divi resumes, markets react to Tuesday’s tech turmoil, Powell testimony continues

Morning Note

Consumers have developed a penchant for germ protection and disinfection during the pandemic. This has been good news for Reckitt Benckiser, which today reports record profits as a 20% jump in LFL hygiene sales lifted earnings. Dettol and Lysol sales growth were both very strong as consumers wiped down door handles and swabbed their Ocado bags on delivery. These habits, says management, will persist. Nutrition sales were flat on a like-for-like basis, which is less positive for longer-term health. Lockdown in microcosm, some might say. Partly that was down to lower birth rates, which are expected to persist as family planning is put on hold. If your wellbeing has taken a hit during the pandemic, perhaps some multivitamins will help. RB hopes so, saying vitamins, minerals and supplements, particularly immunity, and senior nutrition will support 3-5% growth for Nutrition longer-term. RB also reported “improved Durex momentum”, which presumably is contributing to the lower birth rates that, er, are affecting the nutrition business. Swings and roundabouts. Shares rose over 2% in early trade. 


Lloyds shares at last broke above 40p at long last as the company reported better-than-expected full year profits and resumed dividend payments. The company’s bullish outlook for 2021 is encouraging. Impairment charges of £4.2bn were a lot lower than the £4.7bn expected. Going forward I expect loan loss impairments for all the major banks will be much lower than many people believed nine months ago thanks to ongoing government support schemes for workers and businesses during the pandemic, combined with a swift recovery and bounce back in economic sentiment and spending in the summer.  


Other banks dragged on the FTSE 100, which fell 0.5% in the early part of trade on Wednesday. Miners led the way lower, with BHP and Rio Tinto both down by around 3%. Scottish Mortgage is down again after a battering from the tech selloff on Wall Street. European stocks were firmer after a confused Turnaround Tuesday on Wall Street. Asian shares fell with Hong Kong down 3% after the city’s government said it would raise the stamp duty paid on stock trades by both buyers and sellers to 0.13% from the current 0.1%. HSBC fell more than 2.7% in early London trading afterwards, while Standard Chartered declined 2%.  


The Dow Jones and S&P 500 both reversed heavy early losses on Tuesday to close higher as some soothing words from Jay Powell seemed to lift the tide and ease concerns about rising inflation expectations and bond yields. The turnaround came as Powell spoke and urged that inflation remains ‘soft’. This helped cool the rise in yields and curves flattened a touch from their multi-year highs. Nevertheless, cyclicals led by energy and financials were the main drivers of the gains on the broad index, with tech suffering. 


Tech turmoil, or turnaround Tuesday?


The Nasdaq 100 plunged over 3% at one point, breaking under its 50-day simple moving average and testing the Jan 15th low at 12,758, as a tech selloff intensified with Tesla shares suffering a double-digit percentage fall in early trade. Tesla finished down a more modest 2% as Cathie Wood’s Ark Invest – one of the carmaker’s biggest backers – bought another $120m in stock, apparently helping to put a floor under the market – for now at least. The ARKK Innovation ETF finished 3% lower while the Nasdaq 100 managed to finish only 0.5% lower, closing above the 50-day SMA as the January support held. Softbank is said to be planning to invest billions in biotech stocks, though this didn’t seem to help the Nasdaq Biotechnology Index, which closed down 1.5% on the day. 


Oil prices retreated from their highest levels in more than a year as the API reported a surprise 1m barrel build in inventories, vs expectations for a draw of more than 5m barrels, whilst about 80% of Texas production is now back online. Inventories at Cushing rose 2.8m vs expectations for a draw of 0.8m. Distillates declined by 4.5m and gasoline stocks rose by 0.1m. EIA figures today are expected to show a draw of 6.5m barrels. 


In FX, sterling keeps charging higher, with GBPUSD breaking above 1.42 after clearing 1.41 for the first time in three years only yesterday. The pound looks to be buoyed by a much stronger sentiment towards the UK domestic economy in 2021 with the roadmap for exiting the pandemic. It may be slow, but its measured and gives clarity to the market. It’s also believable – gold dust for governments – since the vaccine programme is progressing so well.


Bitcoin untethered 


Bitcoin rebounded after a dismal day with prices north of $50k again. Yesterday Tether and Bitfinex reached agreement with the New York Attorney General to pay an $18.5m fine to settle a long-running dispute that relates to whether the stablecoin Tether, which is supposed to be ‘pegged’ to the US dollar, really is fully tethered. The NYAG said the two entities covered up losses and massively overstated reserves. Neither admit to wrongdoing, but settled in the interest of “increasing transparency”. The statement from AG Letitia James is quite something, and I recommend giving it a read.  


“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” she said in a statement. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.” By mid 2017, the NY AG says that Tether had “no access to banking, anywhere in the world”, which meant that contrary to what it told users, held “no reserves to back tethers in circulation at the rate of one dollar for every tether”.  


This all goes back to concerns that Tethers (which are supposed to be a kind of digital dollar, with each tether backed one-for-one with actual dollars) are used to buy Bitcoin and manipulate prices. A research paper published in 2018 alleged Bitcoin prices are being manipulated with Tether purchases. 


Powell testimony continues 


Is it time to go Catwoman on the debt…? No Jay Powell didn’t understand what Senator Kennedy from Louisiana was on about either. Still, it seems 2021 is again proving to be the year of the cat.  


Powell’s semi-annual testimony in Congress continues today after he delivered the necessary balm for markets yesterday. Powell reiterated that the Fed is not thinking about thinking about raising rates, stressing that price pressures so far remain muted. As expected, he really sought to push back against the bond market’s reading of events, which has seen yields rise and the yield curve steepen to multi-year highs. 


I did find it odd that Powell was so unwilling to get drawn on fiscal relief when he’s been a cheerleader for Washington to err on the side of doing more rather than less throughout the crisis. Speaking last year, he warned: “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.” This the Yellen playbook.  


Powell also reiterated that the Fed’s goal is for inflation to run above 2% for a time – as implied by average inflation targeting. The Fed, he said, expects readings on inflation to rise largely due to the base effect from low readings last year. He can see spending pick up substantially, which could put upward pressure on prices, but he stressed that this not likely to be large or persistent. After 25 years of disinflationary pressures, he argued that whilst inflationary pressures do change, they don’t change “on a dime”. Moreover, he said that if the US does get unwanted inflation, the Fed has the tools to do with it.  


House price growth in the US doesn’t look disinflationary right now. CPI measures don’t give a full picture of inflation – asset price inflation needs to be considered. Yesterday the S&P CoreLogic Case-Shiller Index reported 10.4% annual house prices growth in 2020.


House price growth in the US doesn’t look disinflationary right now, according to the latest data

Week Ahead: US consumer confidence shaky while rising yields impact markets

Week Ahead

Looking forward to the week ahead we see US consumer confidence on shaky ground, despite more stimulus coming soon. Rising yields will also potentially have big implications for the markets. Elsewhere, New Zealand’s economy looks like its gaining strength ahead of the RBNZ rate statement, while Airbnb leads large caps reporting next week with its first earnings call as a publicly traded company. 

US consumer confidence doesn’t look so confident 

Ahead of the official US consumer confidence figures posted next week, it appears consumer sentiment has fallen in February so far. 

Preliminary data revealed a drop in the University of Michigan’s consumer confidence index from a reading of 79.0 for January to 76.2 in February against a consensus of 80.5-80.8. 

Low income households, i.e. those with an annual income of $75,000 or lower, appear to be driving sentiment lower. Only 23% of households in this grouping said their finances had improved since 2014, and 71% said they had made gains in their income.  

What’s interesting, according to Survey Director Richard Curtain, is that consumer confidence has dropped against the previous month, despite Joe Biden preparing the mother of all stimulus packages. $1.9 trillion in relief is on its way, which will put, at minimum, $1,400 apiece into US consumers’ pockets, plus extra support for small businesses. $900bn was also doled out to lower income households in December 2020. 

Support is on its way, but at the moment, consumer sentiment looks like its in the doldrums. 

Rates & equities react to steepening yields 

As rates have sold off, yields have steepened,  which may have consequences for asset classes like FX, equities, and maybe even crypto currencies.  

Last Tuesday, Treasury yields had their biggest gain in 3 months. 10s rose 9 basis points, reaching the highest since February above 1.3%.  

As our Chief Market Analyst Neil Wilson has previously reported, there are some important factors at play here creating inflationary impetus, notably: 

  • A heavy volume of pro-cyclical fiscal stimulus 
  • Ultra-loose monetary policy 
  • Pent-up demand  
  • A savings glut 

European stocks are sliding as concerns around interest rates feed into investors’ thinking with the speed of the change in absolute yields catching them off guard. UK Inflation rose from 0.6% in December to 0.7% in January, due to rising costs as the cost of furniture and household goods, restaurants and hotels, food, and transport. 

Gold has also weakened on higher yields. 

Essentially, this is one to keep track of, as rising yields as implications across the investment and finance world. 

RBNZ Rate announcement – No change on the Kiwi front 

The Reserve Bank of New Zealand (RBNZ) makes its rate statement next week amidst expectations that no major rate changes are coming. 

New Zealand’s economy has been one of the more resilient in the year of the pandemic. Swift, strong lockdown and border control measures limited damage caused by Covid-19, which has put New Zealand in a better than expected economic position. 

The New Zealand Dollar (NZD) enjoyed a great 2020, making significant strides against the pound, euro, and US dollar, reacting well to a turbulent first half of the year, which included a big sell off 

It’s now expected that no further stimulus is needed for New Zealand. Commentators also believe that negative rates are not going to be implemented by New Zealand’s central bank either. 

Australia New Zealand Banking Group, one of the country’s top lenders, does not expect a rate change by RBNZ, in part due to the strength of the NZD, but also because the country’s labour market is in a good position too. 

New Zealand’s labour rate fell to 4.9% in the last quarter, somewhat unexpectedly, with labour underutilisation in some key sectors falling too. Government stimulus in some areas of the economy is helping cover shortfalls in others, which is a boon for employers, a boon for workers, and a boon for the economy as a whole. Exports have also remained supportive. 

Essentially, the outlook in the short term is still good for New Zealand. Some predict OCR rates will begin rising in 2024. Inflation is predicted to rise to 2.5% by June but may scale back to 0.8% in the following year. Let’s keep an eye on New Zealand, but it may not be wise to expect a massive overhaul in monetary policy at next week’s statement. 

Airbnb’s first earnings as a publicly traded company 

Airbnb went public in December 2020 and will make its first ever earnings call as a publicly traded company on February 25th. 

Of course, any earnings will have to be viewed through the pandemic prism. According to its S1 filing, Airbnb’s gross booking volumes had fallen 39% year-on-year 2020, totalling $18bn, while revenues dropped 32% for a total of $2.5bn in the 9 months up to September 2020. Mandatory lockdowns struck in key economies like the US, EU, and UK in April 2020, which bought personal travel to a halt. 

But Airbnb does have enormous brand recognition, which may be helping its shares and business do better than peers. Its market cap of about $120bn outstrips its rival online holiday rivals like Expedia ($22bn), Tripadvisor ($5bn) and even Booking.com ($91bn) Listings have stayed relatively stable, for instance, dropping only 2% across the pandemic with 5.6m registered in September 2020 against 5.7m in December 2019. 

Long-term stays (bookings over 28 days) were down only 13% y-o-y in April 2020, traditionally the worst month for hotel bookings, but showed y-o-y growth between May and September of that year. 

A project $3.2 trillion market opportunity may keep investors looking to Airbnb. According to commentators, Airbnb has very strong potential in its three key offerings: 

  • $1.8 trillion – Short-term stays 
  • $210 billion – Long-term stays 
  • $1.4 trillion Experiences 

What is more, Airbnb had 247 million guests in 2019, accounting for 3.8% of the estimated 6.5 billion global paid overnight trips that year. If it can capture just 10% of the potential market, Airbnb could net $340 billion in sales a year. 

This will be an interesting earnings call to say the least. We’ll be able to register the impact of pandemic on Airbnb and see if its fundamentals are strong enough to weather the storm.  

The outlook may be good already. Investor confidence seems high. Airbnb shares soared 200% after it went public, and as of February 15th, they were trading around their record level. 

Major economic data 

Date  Time (GMT)  Currency  Event 
Tue Feb 23  3.00pm  USD  CB Consumer Confidence 
Wed Feb 24  1.00am  NZD  Official Cash Rate 
  1.00am  NZD  RBNZ Monetary Policy Statement 
  1.00am  NZD  RBNZ Rate Statement 
  1.00am  NZD  RBNZ Press Conference 
  3.30pm  USD  US Crude Oil Inventories 
Thu Feb 25  1.30pm  USD  Prelim GDP Q/Q 
  3.30pm  USD  US Natural Gas Inventories 


Key earnings data 

Date  Company  Event 
Mon 22 Feb  Berkshire Hathaway  Q4 2020 Earnings 
  Palo Alto Networks  Q2 2021 Earnings 
Tue 23 Feb  Home Depot  Q4 2020 Earnings 
  Square  Q4 2020 Earnings 
  HSBC  Q4 2020 Earnings 
  Thomson Reuters  Q4 2020 Earnings 
Wed 24 Feb  NVIDIA  Q4 2021 Earnings 
  Lowe’s  Q4 2020 Earnings 
  Royal Bank of Canada  Q1 2021 Earnings 
  Budweiser  Q4 2020 Earnings 
  National Bank of Canada  Q1 2021 Earnings 
  Puma  Q4 2020 Earnings 
Thu 25 Feb  Salesforce  Q4 2021 Earnings 
  Airbnb  Q4 2020 Earnings 
  Vale  Q4 2020 Earnings 
  Toronto-Dominion Bank  Q1 2021 Earnings 
  Moderna  Q4 2020 Earnings 
  Bayer  Q4 2020 Earnings 
  Dell  Q4 2021 Earnings 
  HP  Q1 2021 Earnings 
  Etsy  Q4 2020 Earnings 
  Telefonica  Q4 2020 Earnings 
Fri 26 Feb  Deutsche Telekon  Q4 2020 Earnings 
  BASF  Q4 2020 Earnings 

Week Ahead: US earnings season is here

Week Ahead

All eyes on the US this week. Earning seasons kicks off in earnest with the big Wall Street investment banks posting their latest reports after a year in which trading revenues have offset bad loans – will this trend continue? Elsewhere US CPI comes into focus – is inflation on its way? US unemployment claims are back too, showing another week of job losses, and we also forecast how US retail sales could look following November/December holiday spending. 

US Earnings Season 

Earnings season kicks off on Wall Street with big banks being the first to announce their latest quarterly financials this week. JP Morgan, Citigroup, and Wells Fargo will be the big three breaking out their ledgers and letting the market know what happened for their Q4 2020 earnings all on January 15th. 

JPMorgan Chase has already declared it is awarding dividends for the 10th consecutive year. Shares have been on a round trip over the last 12 months due to the pandemic but have recovered strongly thanks to vaccines and rising bond yields and are now nearly back to the $140 they traded at this time last year. 

In Q3, JPM net income was up 4% and earnings-per-share posted 9% yearly growth at $2.92. Return on equity showed a robust 15% too alongside a solid 58% efficiency ratio, so JPMorgan might be showing it has what it takes to slog out in what’s proved to be a tough environment for banks. 

Citigroup plans to restart stock repurchases in 2021 after the Fed gave the green light to big US bank stock buybacks under certain conditions in December 2020. Its also attracting positive attention from analysts, who predict its 12-month EPS could rise solidly. It is expected to earn $4.27 per share going forward, which means investors will be watching this earnings release with high interest. Citi will also continue to pay shareholders a quarterly $0.51 dividend as usual. 

Wells Fargo is probably not as jubilant as it prepares its Q4 2020 earnings. The US third-largest bank’s stock dropped 43% in 2020 amidst sales scandals, revenue challenges, changes in management, and a halt in stock buybacks. This compares with overall banking industry decline of 18.2%. Unlike the likes of JPM and Citi, Wells Fargo cannot lean on an investment banking or trading revenues to get it out of the hole created by bad loans. 

US Retail Sales 

US retail sales are announced this week, coming fresh from the holiday season.  

The holiday period is traditionally a time where shoppers splurge big time and a boon for retailers as you’d expect. But with coronavirus weighing on sentiment, expectations were pretty low for December’s stats. 

Mastercard SpendingPulse may show the picture is as rosy as jolly old St. Nick’s cheeks with 75-day holiday period sales, incorporating Thanksgiving and Christmas, beating expectations. Sales were up 3% against the 2.4% forecast and online sales were up a huge 49%.  

Will this release reflect the positive outlook provided by Mastercard? Fitch is advising cool headedness. US retail has been up against the Covid pandemic, as well as associated factors like joblessness and loss of income for key buying groups. The data is released on Friday 15th so keep an eye on it. 


Core CPI data is released this week, indicating if inflation is about to sweep into the US. Stimulus packages designed to relieve the economic pressures of Covid-19 may also stimulate inflation in 2021. Last week US 10-year breakevens rose above 2% for the first time in 2 years, indicating growing fears in the market that inflation will start to emerge. 

The latest release, all the way back in December 2020 and detailing November’s CPI performance, show a 0.2% rise for urban consumers. That figured into a 1.2% rise overall. November’s increase was broad-based, with no single sector accounting for more than a quarter of the rise. 

In our 2021 Outlook, we suggested inflation as a dog that may bark the loudest in 2021. Stimulus we’ve mentioned, but aspects like a higher oil prices may cause inflationary pressure on prices going forward. Let’s see what January’s first CPI release reveals. 

US Unemployment Claims 

Unemployment claims unexpectedly below 800,000 at the end of 2020, and January’s unemployment claims have continued this relatively positive trend. The pandemic has not been kind to the job market and looks like it will continue to throw some more punches at the US as the month progresses, but with claims data for week ended January 2nd adding 787,000 new claimants, the levels have held steady for past couple of weeks. 

Despite a vaccination programme beginning to roll out in the US, the restrictions on travel and work in sectors like hospitality, continue to hit jobs. Until the pandemic is reined in, and people can start going out to bars, clubs and, well anywhere requiring hospitality providers, job losses may still keep piling on. 

Major economic data 

Date  Time (GMT)  Currency  Event 
Mon Jan 11th  1.30am  CNH  CPI y/y 
  1.30am  CNH  PPI y/y 
  2.30pm  CAD  BOC Business Outlook Survey 
Tue Jan 12th  12.01pm  GBP  BRC Retail Sales Monitor y/y 
Wed Jan 13th  10.00am  EUR  Industrial Production y/y 
  1.30pm  USD  CPI m/m 
  1.30pm  USD  Core CPI w/m 
  3.30pm  USD  US Crude Oil Inventories 
Thu Jan 14th  7.00am  EUR  German Prelim GDP q/q 
  1.30pm  USD  Unemployment Claims 
  3.30pm  USD  US Natural Gas Storage 
Fri Jan 15th  7.00am  GBP  GDP m/m 
  1.30pm  USD  Core Retail Sales m/m 
  1.30pm  USD  Retail Sales m/m 


Key earnings data 

Date  Company  Event 
Tue Jan 12  Yaskawa Electric Corp.  Q3 2020 Earnings 
Wed Jan 13  Markit  Q4 2020 Earnings 
  Wipro Ltd.  Q3 2021 Earnings 
  Aeon  Q3 2020 Earnings 
  Shaw Communications Inc.  Q1 2021 Earnings 
Thu Jan 14  BlackRock  Q3 2021 Earnings 
  Fast Retailing Co. Ltd.  Q1 2021 Earnings 
  First Republic Bank  Q4 2020 Earnings 
  Associated British Foods  Q1 2021 Earnings – Trading Update 
  Chr. Hansen Holding  Q1 2021 Earnings 
Fri Jan 15  JPMorgan Chase & Co.  Q4 2020 Earnings 
  Reliance Industries Ltd.  Q3 2021 Earnings 
  Citigroup Inc.  Q4 2020 Earnings 
  Wells Fargo $ Co.  Q4 2020 Earnings 
  PNC Financial Services Group  Q4 2020 Earnings 
  HCL Technologies  Q3 2021 Earnings 
  V.F. Corp.  Q3 2021 Earnings 

Bank of England pulls QE lever, Biden close to victory

Morning Note

Easing ain’t as easy as it looks: The Bank of England increased its programme of government bond purchases by an additional £150bn.

This was more than the market was expecting and took the total stock of government bond purchases to £875 billion.

That said, the BoE had pretty well telegraphed this move yesterday when it decided to bring the decision forward from 12 noon to 7am – most pundits assumed that this meant a monetary policy decision of note that the BoE didn’t want to get entangled with the chancellor’s latest pandemic statement.

Interest rates were kept at 0.1% and the MPC voted 9-0 for the measures. There was no talk of negative rates, just mention of the risks to the currency being to the downside. That may be, but sterling rallied as there was no surprise rate cut and no mention of plans to take rates negative.

GBPUSD rose sharply from 1.2940 to above 1.30 after the announcement, eyeing near-term resistance peaks at 1.3050 and then the 1.3140 high at the peak of the ‘blue wave’ dollar selling on election night before the results showed a much tighter race than polls indicated.

Trump’s election chances hang by a mainly legal thread now that Joe Biden has secured Wisconsin and Michigan. Nevada resumes counting today with Biden having a tiny lead in the state and 25% of the vote yet to count – you think this would favour the Democrat.

Meanwhile, NBC projects that Nebraska’s 2nd Congressional District will swing it for Biden. Legal challenges from Trump are incoming in Wisconsin and Georgia but unlikely to be a material drag – excluding some attempts to block counts and question the validity of some ballots, the smooth transition of power was never really in doubt. But it’s clear there has been no Blue Wave.

The Democrats’ chances of flipping the Senate to Blue appear to have gone, though counting continues. America remains as divided as ever, with a Blue White House needing to work with a Red Senate, some of the more extreme tendencies of the Democrats will be handicapped. The worst of the volatility is behind and while we need to get through these legal challenges, a return to a Blue White House and Red Senate may result is a calmer policy situation (fingers crossed!).

It looks almost certain we will get the ‘So Mauve’ outcome from our election playbook (Biden win, Senate stays red). As detailed there, this implies a degree of gridlock in Washington, which ex-stimulus is not always a bad thing for the market:

  • Less uncertainty over policy likely to support equities, particularly Big Tech, whilst a Biden presidency ought to see some degree of a reset with trade partners that would boost sentiment and corporate earnings.
  • Stimulus delays could create near-term volatility, but it would be in no one’s interests to drag their feet for long given any ballot box risk would be two years away.
  • Tax uncertainty removed = +ve for equity valuations, especially Growth
  • Improvement in trade relations with partners and China could see EM supported as well as European equities/currency – would also tend to boost US corporate earnings
  • Not as bad for the dollar as a Blue Wave result with trade reset likely to support flows, also less fiscal expansion a factor, but USD seen weaker in this outcome as part of broader downtrend.

US and European equities rallied Wednesday in the wake of the election and carried through with this positivity. Solid gains of 0.5% registered on the FTSE 100 taking the blue chip index above 5,900 and the trend indicates a push to 6,000.

There is clearly some relief in the markets that the election is (almost) behind us – as I’ve been saying the threat of a ‘crisis’ level disputed election (Trump refusing to leave office) was always overstated and a few days of court decisions won’t matter much for investors with a longer-term horizon, and it’s these flows that are driving things here.

The Blue Wave reflation trade clearly had to unwind – US 10 year yields have retreated to 0.73%, from achieving a multi-month high on election night of 0.945%. Financials fell, with shares in JPMorgan –3% and Bank of America –4%. Lower nominal rates also +ve for gold, with spot to $1,915 in early trade this morning.

Just to highlight how much Tech likes the result (i.e. no Democrat Senate to mess around with regulations and raise taxes, as well as no reflation trade to spark rotation out of growth to value), Nasdaq futures are up 10% from their Monday lows. Amazon and Alphabet jumped 6%, with Apple +4% and Facebook rallying +8%.

NASDAQ Performance

Stocks try to steady after sell-off

Morning Note

What did I miss? Markets in Europe steadied but failed to really bounce after a brutal sell-off on Wednesday saw all the major indices deeply in the red and trading at levels not seen for some time.

The instigation of second national lockdowns in Germany and France rattled markets.

Election nerves may also be present, particularly as the path to a stimulus package in the US will not become clear until after the results are known.

We know that governments are supportive of business, but we also know it was a long slog out of lockdown last time and won’t be easy this time. Markets had become a little complacent about the recovery and secondary lockdowns tell a different story – it will be rocky and uneven.

The S&P 500 tumbled 3.5% and closed below 3,300 with similar losses on the Dow Jones and Nasdaq. Vix futures rose to levels not seen since the sell-off at the start of September.

Futures point to a higher open on Wall Street. US GDP figures later will give the first look at the Q3 bounce back. The dollar rose back to the top of the recent range with the euro coming under pressure from lockdowns measures in the bloc’s two largest economies.

GBPUSD was steady at 1.30 but won’t move until there is a significant Brexit headline.

Lockdowns are not good for oil sentiment. Prices slumped on the lockdown announcements but also felt the pinch from a rise in US crude stocks. EIA figures showed a 4.3m barrel build in US crude inventories.

As we have been warning, the threat of falling demand leading to inventories flipping from draws to builds has been present and we can expect this trend to weigh on prices.

Nevertheless, Shell raised its dividend after reporting better-than-expect earnings for its third quarter. Management hiked the divi by 4% to 16.65 cents – having made an historic cut to the dividend during the peak of the pandemic earlier in the year. Shares rose over 3% in early trade.

Lloyds shares also rose after it swung back into profit and set aside less for impairments than feared – chatter around dividends returning will get louder, particularly as these results come in the wake of some pretty upbeat notices from the larger banks.

The risk is that the fiscal support runs out and new lockdowns and depressed demand due to the chronic impact of the pandemic on consumer and business sentiment means impairments are going to rise later in 2021.

It’s a big day for corporate earnings in the US and the focus will undoubtedly fall on the FAANGs with Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) all set to report quarterly earnings figures later.

Earnings come amid heightened scrutiny on big tech as the US Department of Justice opened an antitrust case against Google’s parent company, Alphabet, whilst executives from social media giants faced a Senate hearing yesterday on reforming so-called Section 230 rules that give tech platforms immunity from prosecution over user-generated content. Shares in all fell sharply on Wednesday amid the market turmoil.

With lockdowns in focus, today’s European Central Bank meeting will be of particular importance for European markets. Many market participants are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices.

The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting and the assumptions for growth contained in the ECB’s September look out of step with reality. Weakness in Friday’s PMIs highlights the concern among businesses, particularly in services.

The threat of a double-dip recession is real – Christine Lagarde recently commented that the resurgence of the virus is a clear risk to the economy – and that was long before the imposition of national lockdowns in Germany and France.

Given the murkier outlook and dreadful inflation backdrop, it seems all but certain the ECB will increase its bond-buying programme by another €500bn by December – albeit it may choose to increase PSPP rather than PEPP – for the markets these acronyms won’t matter too much – it’s the size and duration of the liquidity injection that matters, not how it is presented.

Lagarde may drop some hints in the press conference to increasing PSPP/PEPP envelopes in December but will not over-commit. Moreover, with progress on delivering on the fiscal side slow, the ECB will feel obligated to step up.

To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.” Fundamentally it will be more of the same from the ECB with it stressing it is ready to do more and the momentum is with the doves to ease more.

Ahead of the election next Tuesday, Biden leads by 7.5pts nationally, and by 3.6pts in the battlegrounds.

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. 


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