Week ahead: FOMC minutes to lift the veil on Fed’s thinking

Week Ahead

This week sees the release of the latest batch of FOMC meeting minutes, giving insight into the Fed’s inner workings. We also get some big data releases. US retail sales are in focus after an unexpected jump in June, as well as latest CPI figures for the UK economy. 

Minutes from July’s FOMC meeting are published this week.  

Things remained pretty much where they started when the Fed met for its monthly two-day meeting last month.  

It did not lift interest rates from their current historically low level, nor did the Fed announce when it planned on altering its $120bn monthly bond-buying programme.  

“Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgagebacked securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals,” said the FOMC in a statement. “Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” 

The basic undercurrent is that the economy is recovering, despite rapidly rising Covid-19 case numbers. However, prevailing changes in the economy, resulting from the pandemic, may force Chairman Powell to act quicker than expected. 

We’ve seen core inflation rise in successive CPI prints – but we’ve also seen the employment rate drop too. Last month’s nonfarm payroll print was one of the strongest for years, with 943,000 new jobs added to the US economy. The unemployment rate fell to 5.4% too. 

Job participation is one of the key metrics the Fed is using to gauge the United States’ economic health to make policy adjustments. We’ve already seen some chinwagging suggest that tapering is on the way, so this may supersede the insights we’ll gain on Wednesday’s FOMC minutes release. 

Switching to data, US retail sales figures are released this week. Markets will be looking to see if June’s surprise increase was a one-off or the start of a new trend. 

Core retail sales rose 1.1% and retail sales as a whole grew 0.6% in June, something which markets weren’t expecting. From a year-on-year perspective, sales surged 18% against June’s 2020 levels. 

According to the US Commerce Department cited Covid-19 vaccinations, low interest rates, and huge fiscal stimulus as underpinning retail sales. But, as mentioned above, this was a bit of a shock for US economists. With the US economy reopening, consumer spending was trending more towards experiences and trips, rather than consumer goods. 

In fact, at the last retail data reading, May’s stats were revised down. It was a 1.7% monthly decline in May, rather than the 1.3% originally reported. Again, this was due to the switch from consumer goods to experiences. 

Staying on the data front, July’s UK consumer price index readings come on Wednesday morning.  

June’s print showed a CPI three-year high. At 2.5% in June, up from 2.1% in the previous month, consumer price inflation is now at its highest level since 2018. That may prompt the Bank of England into changing its stance on rate hikes sooner than expected. 

That said, Governor Bailey maintained the UK central bank’s dovish stance at its August meeting, deeming CPI inflation as transitionary. No major tweaks to UK monetary policy were made at this time.  

The Bank of England has adjusted its long-term inflation outlook, however. It now believes inflation will run at 3.1% throughout the next 12 months – up from the 2.8% rate forecast in June. 

Will we see another estimate-beating CPI reading this month – and will this be enough to spur Governor Bailey and co. into action?  

Speaking of central banks, the Reserve Bank of New Zealand gives its August rate statement next week.  

Rumours are flying that the RBNZ could raise rates as early as this month. It’s already committed to removing its QE programme in a move that surprised onlookers in July.  

“Our current expectation is that the RBNZ will hike interest rates in the August Monetary Policy Statement (MPS), followed by a subsequent hike in each MPS till [the] interest rate reaches 1.75% in 2022,” said Finn Robinson, economist at Australia and New Zealand Banking Group (ANZ). 

Currently, New Zealand’s cash rate is 0.25%, the same rate it has been for the past year. 

This is likely a response to rising CPI inflation. July’s print saw New Zealand’s consumer price index rising by 1.3%, bringing total inflation to 3.3%, passing the RBNZ’s 1-3% target. 

If a rate hike is coming, New Zealand would be one of the first, if not the first, country to do so. 

It’s also the final week of this quarter’s earnings season this week. We’re not expecting too many large caps to report in, with Walmart being the largest firm still yet to report, but you can see which companies are sharing their quarterly with our earnings calendar 

Major economic events 

Date  Time (GMT+1)  Asset  Event 
Tue 17-Aug  2.30am  AUD  Monetary Policy Meeting Minutes 
  1.30pm  USD  Core Retail Sales m/m 
  1.30pm  USD  Retail Sales m/m 
       
Wed 18-Aug  3.00am  NZD  Official Cash Rate 
  3.00am  NZD  RBNZ Monetary Policy Statement 
  3.00am  NZD  RBNZ Rate Statement 
  4.00am  NZD  RBNZ Press Conference 
  7.00am  GBP  UK CPI m/m 
  1.30pm  CAD  CPI m/m 
  3.30pm  OIL  US Crude Oil Inventories 
  7.00pm  USD  FOMC Meeting Minutes 
       
Thu 19-Aug  2.30am  AUD  Employment Change 
  2.30am  AUD  Unemployment Rate 
       
Fri 20-Aug  7.00am  GBP  Retail Sales m/m 

 

Key earnings data 

Mon 16 Aug  Tue 17 Aug  Wed 18 Aug 
Roblox Corporation  Walmart   Lumentum Holdings 
 
Cisco Systems 
 
NVIDIA  

 

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. 

US CPI 

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 

Week Ahead: US consumer in focus with retail sales and earnings

Week Ahead

Will there or won’t there be a Brexit deal this week? Who knows, talks continue for now but the deadline approaches. Meanwhile we are looking to the US consumer this week with retail sales figures for October and earnings updates from Wal-Mart, Home Depot and Target among others. 

Brexit?

At the time of writing, Brexit talks are rumbling on but with no end in sight. We have a seen a lot of the usual posturing but so far the two sides remain at odds over the so-called level playing field and fishing rights. As ever, the pound will remain sensitive to headline risk. GBPUSD rallied to 1.33 last week, hitting its highest since early September, but how will markets position in the even of a cliff-edge no deal exit from the transition period at the end of December? 

US retail sales & earnings 

US consumer confidence will be tested this week as we look at the retail sales figures for October and some big earnings updates from the likes of Wal-Mart, TargetHome Depot, Lowe’s and TJX. Retailers have done well during the pandemic as consumers have spent less on experiences like holidays and dining out and more on stuff from gadgets to groceries. But how have consumers in the US fared since the end of $600-a-week stimulus cheques?   

September saw a blow-out month as retail sales grew at the fastest pace in three months, rising 1.9% after a +0.6% move in August. Consumers have built up a lot of savings and are ready to deploy these in the economy – October may see another strong month though the election may be a factor. Department stores sales rose 9.7%, whilst clothing sales were up 11%, but are still down 7.3% and 12.5% respectively on last year. 

Watch the rotation 

Last week saw a big move out of growth and momentum into value and cyclical stocks with the vaccine news from Pfizer driving a reflationary trade. Although there was some moderation in the flows later in the wee, the Nasdaq 100 came under pressure while industrials and the small cap Russell 2000 rallied well. European equities also jumped with the FTSE 100 notably making multi-month highs with its strong cyclical components. Find out what Wall Street’s big investment banks think will happen to the markets this year and in 2021. 

And finally… 

Will Donald Trump continue to press his claims? Georgia is recounting all votes by hand. The market has all but counted out the president, but are investors too sanguine about a potential constitutional crisis in the US? The truth is most Republicans know he has lost but they have one eye on the Georgia Senate run-off votes in January and they appreciate that Trump can get the vote out to counter the Democrats. If the Democrats take both seats, the Senate is split 50:50 with the casting vote in this situation resting with the Vice President. 

Top Economic Data This Week

 

Date  Time (GMT)  Currency   Event 
Sun Nov 15  11:50pm  JPY  Prelim GDP Price Index y/y 
    JPY  Prelim GDP q/q 
Mon Nov 16  12:01am  GBP  Rightmove HPI m/m 
  2:00am  CNH  Fixed Asset Investment 
    CNH Industrial Production y/y 
    CNH  Retail Sales y/y 
    CNH  Unemployment Rate 
  4:30am  JPY  Revised Industrial Production m/m 
    USD  Empire State Manufacturing Index 
  3:30pm  AUD  CB Leading Index m/m 
Tue Nov 17  12:30am  AUD  Monetary Policy Meeting Minutes 
    USD  Core Retail Sales m/m 
    USD  Retail Sales m/m 
    USD  Import Prices m/m 
  2:15pm  USD  Capacity Utilization Rate 
    USD  Industrial Production m/m 
Wed Nov 18  12:30am  AUD  Wage Price Index q/q 
  7:00am  GBP  CPI y/y 
    GBP  Core CPI y/y 
    GBP  PPI Input m/m 
    GBP  PPI Output m/m 
    GBP  RPI y/y 
  9:30am  GBP  HPI y/y 
  10:00am  EUR  Final CPI y/y 
    EUR  Final Core CPI y/y 
  Tentative  GBP  Bank of England Monetary Policy Report Hearings 
  1:30pm  CAD  CPI m/m 
    USD  Building Permits 
    USD  Housing Starts 
  3:30pm  USD  Crude Oil Inventories 
Thu Nov 19  12:30am  AUD  Employment Change 
    AUD  Unemployment Rate 
  7:00am  CHF  Trade Balance 
  9:00am  EUR  Current Account 
  1:30pm  CAD  ADP Non-Farm Employment Change 
    USD  Philly Fed Manufacturing Index 
    USD  Unemployment Claims 
  3:00pm  USD  CB Leading Index m/m 
    USD  Existing Home Sales 
  3:30pm  USD  Natural Gas Storage 
  11:30pm  JPY  National Core CPI y/y 
Fri Nov 20  12:01am  GBP  GfK Consumer Confidence 
  12:30am  JPY  Flash Manufacturing PMI 
  7:00am  EUR  German PPI m/m 
    GBP  Retail Sales m/m 
    GBP  Public Sector Net Borrowing 
  1:30pm  CAD  Core Retail Sales m/m 
    CAD  Retail Sales m/m 
  3:00pm  EUR  Consumer Confidence 
  All Day  All  G20 Meetings 

 

Top Earnings Reports This Week

Don’t forget to tune into XRay for more updates.

 

17-Nov  Walmart  Q3 2021 Earnings 
18-Nov  NVIDIA  Q3 2021 Earnings 
17-Nov  Home Depot  Q3 2020 Earnings 
18-Nov  Lowe’s Companies  Q3 2020 Earnings 
19-Nov  Intuit Inc  Q1 2021 Earnings 
20-Nov  Naspers  Q2 2021 Earnings 
18-Nov  Target Corp  Q3 2020 Earnings 
18-Nov  TJX Cos. Inc  Q3 2021 Earnings 
16-Nov  Vodafone Group  Q2 2021 Earnings 

 

Stocks, shopping and borrowing all rise

Morning Note

Stocks are firmer on Friday though major indices continue to show indecision as they rotate around the 50-60% retracement of the recent pullback through the second week of June. Economic data remains challenging and in the US at least there are fears about rising case numbers.

US jobless claims were disappointingly high, missing expectations for both initial and continuing claims. Following the surprisingly good nonfarm payrolls report, the weekly numbers didn’t follow through with conviction – initial claims were down just 58k to 1.5m, whilst continuing claims only fell by 62k to 20.5m.

The slowing in the rate of change is a concern – hiring is not really outpacing firing at a fast-enough pace to be confident of a decent recovery. You would prefer to see a greater improvement given the reopening of businesses, and it suggests more permanent scarring to the labour market.

US Covid-19 cases climb, UK retail sales jump in May

Worries about the spread of the disease persist, though second wave fears are not exerting too much pressure as investors start to get used to rising case numbers – remember it’s not cases that count, it’s the lockdown and people’s fear of going out that hurts the economy and corporate earnings. California and Florida both registered their biggest one-day rise in cases. As previously stated, I don’t believe there is the will to enforce blanket lockdowns again.

UK retail sales rose 12% in May, bouncing back from the 18% decline in April as we rushed to DIY stores but are still 13% down on February levels before the pandemic struck these shores.  Australia also posted a strong bounce in retail sales of more than 16%.

Will US quadruple witching boost volatility for range bound stocks?

Stocks were broadly weaker yesterday in Europe and the US. Shares across Europe have opened higher on Friday and remain set to end the week up. As per yesterday’s note, the major indices remain in consolidation mode around the middle of the range from the Jun 8/9th peaks to the Jun 15th lows. The S&P 500 finished at 3115, on the 61.8% retracement of the move.

Trading around the 6240 level this morning the FTSE 100 is similarly placed but also flirting with the 50% retracement of the Jan-Mar drawdown. Remember it’s quadruple witching in US when options and futures on indices and equities expire, so there can be a lot more volume and volatility.

UK public debt is now higher than GDP, official data this morning shows. That’s not happened since the 1960s as the nation recovered from the second world war and highlights the damage being wrought on the public finances by the pandemic response. Picking up from the Bank of England yesterday, which increased QE by £100bn, the amount of issuance may require additional asset purchases from the central bank.

Sterling bears eye 1.22 in the wake of BoE decision

Sterling broke to almost three-week lows yesterday, with GBPUSD testing the 1.24 round number support in the wake of the BoE decision. This morning the 50-day simple moving average at 1.2430 is acting as support but having already broken down through the key support levels the path to 1.22 is open again. The euro was also making fresh lows for June, with the 1.12 round number holding for the time being after a breach of the 1.1230 area at the 23.6% of the 2014-2017 top-to-bottom move.

OPEC compliance promises lift oil

Oil is higher, with WTI (Aug) progressing back towards the top of the recent consolidation range close to the $40 level, which may act as an important psychological level. Iraq and Kazakhstan have set out how they will not only comply with OPEC cuts but also compensate for overproduction in May. Other ‘underperforming participants’ have until Jun 22nd to outline how they will compensate for overproduction following Thursday’s Joint Ministerial Monitoring Committee (JMMC). OPEC conformity stood at 87% in May and the JMMC did not recommend extending the maximum level of cuts into August.

Hopes that non-compliant nations will make up for cuts helped raise sentiment around crude and sent Brent into backwardation for the first time since the beginning of March, with August now trading a few cents above September and October contracts.

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