Saxo Spotlight: What’s on investors & traders radars this week, January 23-27: US GDP, AU NZ CPI, Microsoft & Tesla earnings
Risk on tone supported for now as bond yields hold near lows, along with US dollar index
US Treasury bond yields trading at some of the lowest levels down about 0.8% from the October peak, but yields are up slightly at 3.48%. Yields look set for lower levels and could even head back down and could drop below the 200-day SMA. The next level we’re watching is if yields fall to 3.22%. If that level is reached, it would theoretically support US equities. We’d also need to see the US dollar remain lower. The US dollar index is now down 10% from its September high, but rose slightly on Friday after hotter than expected US prouder inflation for November, which bolsters the case for the Fed to keep hiking, even if it’s at a slower pace.
Most gains in Saxo's equity baskets are in sectors benefiting from China’s reopening
The Travel, E-commerce basket of stocks are up the most this month, followed by Energy Storage and China Consumer and Technology basket. However year-on Year, the most growth is from Defence which is up 21%.
Economic news brings FX into focus
US fourth-quarter GDP data, European PMIs and the Bank of Canada rate decision, as well as CPI for Australia and NZ will all be watched. NZ Consumer prices are expected broadly to have climbed 7.1% in the fourth quarter from a year earlier, which could mark CPI is slowing from the prior 7.2% and, more importantly, less than the 7.5% predicted by the Reserve Bank in its most recent forecasts. Given the NZ dollar was one of the strongest currencies last week, it could face profit taking if the data is weaker than expected.
Market hours are limited this week, for Chinese New Year
This also means light volume is expected and thus moves could perhaps be amplified on thin trade. China’s market is shut all week (Monday to Friday), Hong Kong’s market is shut for Monday to Wednesday, Singapore’s market is shut for Monday and Tuesday. Australia’s market shut Thursday for Australia Day.
Australia’s ASX200 could likely to take out a new all-time high.....
this is supported by the rally in commodities and expected higher earnings from mining companies, which make up 25% of the market. However CPI is a focus this week. Our technical analyst backs up this thinking, that the ASX200 is likely to hit a new all high- for more click here. But the danger this week is if Q4 CPI is hotter than expected on Wednesday, then equities could see profit taking. However overall sentiment is bullish for the ASX as demand for copper and iron ore is likely to pick up after CNY. CPI is expected to rise to 5.8% YoY from 5.6% (trimmed Mean CPI). And CPI YoY is expected to rise to 7.7% YoY, from 7.3%. Hotter data could further fuel the AUD and a likely fuel a sell-off in tech stocks and real estate. In company news to watch, iron ore company Champion Iron (CIA) reports quarterly earnings. Given the iron ore price is up 66% from its low, its outlook is expected to be optimistic.
In commodities Gold and copper are gaining momentum and oil rallies
- The precious metal, gold, has been supported by lower yields and the US dollar falling, which has supported gold up 19% from its September low. As Ole Hansen points out we might need to see ETF holdings pick up in Gold, to see longer term investors getting involved, which could support gold higher, or potentially we may see some profit taking. However, gold momentum remains as long as the USD and yields behave. Recall that if the Fed pauses rates and rates peak, we think there is a case for our outrageous prediction of gold hitting $3,000 coming true.
- Copper trades up 0.5% to $4.25, its highest level since June last year, continuing its 32% rally off its low on expectations that China will increase buying after the Luna New Year holiday. Plus there are also disruptions on copper output in Peru, which could impact 2% of global copper output. So given inventory levels are already lower and demand expectations are picking up, copper prices are underpinned.
- Gas and oil prices are also higher too ahead of the EU embargo on Russian products which starts on February 5th. Oil (WTI) is up 1.3% to $82.64, at this level since early November, after two weeks of gains. Refinery demand is supporting prices.
Tech companies' profits are expected to dive, but earnings estimates could be too optimistic & disappoint
- In the S&P500(US500.I) tech companies, which make up 26% of the market, are expected to report a quarterly profit drop of 9.2% on average, according to Bloomberg. This could be the biggest tech profit drop since 2016. Forward 12-month earnings of 39% is also expected according to Bloomberg. The danger is that estimates are still too bullish, and markets will likely be disappointed, which would trigger a fall.
- Overall aggregate S&P500 earnings are expected to have grown 2.12% in the quarter and miners are expected to deliver the most growth, real estate with the least.
- So far, only 55 companies have reported in the S&P500 and earnings have fallen over 4% on average. So, the bear case is still a factor for some investors, especially in tech. More job cuts are expected with margins being squeezed. EV companies are also facing pressure with higher metal prices.
- On Tuesday Microsoft kicks off earning season. Defence giants Raytheon and Lockheed Martin report on Tuesday. Tesla reports Wednesday. On Thursday Intel and Mastercard report, and steel giant Nucor. On Friday Chevron. These could be industry proxies to watch with a major focus on their outlooks.
Key economic releases & central bank meetings this week to watch
- China, Hong Kong, Taiwan, South Korea, Indonesia, Malaysia, Singapore Market Holiday
- Japan BOJ Meeting Minutes (Dec)
Tuesday 24 January
- China, Hong Kong, Taiwan South Korea, Malaysia, Singapore Market Holiday
- Australia Judo Bank Flash PMI, Manufacturing & Services
- Japan au Jibun Bank Flash Manufacturing PMI
- UK S&P Global/CIPS Flash PMI, Manufacturing & Services
- Germany S&P Global Flash PMI, Manufacturing & Services
- France S&P Global Flash PMI, Manufacturing & Services
- Eurozone S&P Global Flash PMI, Manufacturing & Services
- US S&P Global Flash PMI, Manufacturing & Services
- Thailand Customs-Based Trade Data (Dec)
- Germany GfK Consumer Sentiment (Feb)
- United Kingdom CBI Trends (Jan)
- China, Hong Kong, Taiwan Market Holiday
- New Zealand CPI (Q4)
- Australia Composite Leading Index (Dec
- Australia CPI (Q4)
- Japan Leading Indicator (Nov, revised)
- Singapore Consumer Price Index (Dec)
- United Kingdom PPI (Dec)
- Thailand 1-Day Repo Rate (25 Jan)
- Germany Ifo Business Climate New (Jan)
- Canada BoC Rate Decision (25 Jan)
- Australia, China, Taiwan, India Market Holiday
- Japan BOJ Summary of Opinions (Jan)
- South Korea GDP (Q4)
- Japan Services PPI (Dec)
- Philippines GDP (Q4)
- Singapore Manufacturing Output (Dec)
- Norway Labour Force Survey (Dec)
- United Kingdom CBI Distributive Trades (Jan)
- Canada Business Barometer (Jan)
- United States Durable Goods (Dec)
- United States GDP (Q4, advance)
- United States Initial Jobless Claims
- United States New Home Sales (Dec)
- China, Taiwan Market Holiday
- Japan CPI, Overall Tokyo (Jan)
- Australia PPI (Q4)
- Australia Export and Import Prices (Q4)
- United States Personal Income and Consumption (Dec)
- United States Core PCE (Dec)
- United States UoM Sentiment (Jan, final)
- United States Pending Home Sales (Dec)