Saxo Spotlight: What’s on investors & traders radars this week?
Macro

Saxo Spotlight: What’s on investors & traders radars this week?

APAC Strategy Team

Summary:  This week, focus will be on the Fed's preferred inflation read, the first BOJ policy meeting in the Ueda era, as well as Chinese Industrial Profits and Australia CPI. Five of the 10 biggest companies in the MSCI All World Index report this week, including Microsoft, Amazon, Alphabet, Meta and Exxon. Earnings misses, on already revised-down earnings estimates could threaten stock prices. We cover what you need to watch and why options for downside protection are rising.

US GDP growth is expected to slow modestly to 2%

The advance reading of the US real GDP growth, scheduled to release on Thursday, is expected, according to Bloomberg’s survey of economists, to slow to 2% Q/Q annualized in Q1, down from 2.6% in Q4 last year. Despite inventory drawdown is potentially dragging GDP growth, personal consumption is expected to come in strong at 4% Q/Q annualized and be the key driving force to sustain GDP growth in Q1.

US core CPI deflator and employment cost index to gauge the Fed’s interest rate path

This Friday, we will have the release of the Fed’s preferred measures of inflation and wage growth. The median forecast for core PCE from economists surveyed by Bloomberg is 0.3% M/M and 4.5% Y/Y in March (versus 0.3% M/M, 4.6% Y/Y in February). As rent-related components have a smaller weight in the core PCE measures than in the core CPI calculation, the core PCE may not benefit as much as the CPI counterpart from the recent weaknesses in rents. Investors will monitor closely the core service excluding housing sub-index in the PCE report to gauge the underlying consumer inflation trend in the U.S. Meanwhile, the headline PCE deflator growth is expected to slow to 0.1% M/M and 4.1% Y/Y in March from 0.3% M/M and 5.0% Y/Y in February.

The Employment Cost Index (ECI) is the Fed’s preferred measure of wage growth. The Bloomberg surveyed consensus is expecting the ECI to tick up to 1.1% Q/Q in Q1, from 1.0% in Q4. The implied Y/Y change will be 5.0% in Q1, below the 5.1% in Q4.

The first BOJ policy meeting in the Ueda era

This Friday, the Bank of Japan (BOJ) is concluding its two-day monetary policy meeting, the first under the reign of Mr. Ueda. The majority of investors as suggested in various surveys are expecting no change to policies, including the yield curve control (YCC) policy at this meeting. At a press conference earlier this month, Ueda reiterated his stance that the YCC policy is appropriate in view of the current economic, price and financial situation. Investors are expecting some sort of changes to the YCC policy later this year but are divided in the forms of policy changes ranging from widening the current +/- 50bps band, shortening the tenor of the Japanese Government bond (JGB) yield that is targeted from currently 10-year to the 5-year or even the 2-year JGB, or even completely abolishing it. A change to the YCC policy is likely to make the Yen stronger.

Chinese industrial profits are on watch: bringing iron ore and copper prices and stock in focus

On Thursday traders will be watching Chinese Industrial Profits, looking for clues that China’s industrial sector has the propensity to increase commodity buying. Recent gains in factory output, as well as a seasonal increase in sales and exports, could reflect that industrial profits are improving in sorts; with profits expected to show a 11% YoY drop, which will mark an improvement from the prior 22% pull back in profitability YOY, according to Bloomberg. The data could also either validate or quash remarks that have been swirling, saying Chinese steel mills are experiencing a large profit squeeze, with some curbing output. As for trading implications; we will be watching iron ore and copper prices, as well as big miners shares and ETFs. Also consider the iron ore price pulled back 7% last week and trades almost down 3% on Monday, on concerns China will slow demand, at a time when iron ore producers such as Rio and Fortescue are exporting record amounts of iron ore, with traders concerns oversupply will continue to pressure iron ore prices lower.

Australian CPI and potential implications for AUD

On Wednesday Australia CPI will be in focus. Inflation is expected to cool with softening food prices to push down the figures, compared to last year’s weather-related price spikes. YoY inflation is expected to drop from 7.8% to 6.9%. QoQ inflation is expected to cool from 1.9% to 1.3%, that’s according to Bloomberg consensus. However, the RBA expects a 1.8% QoQ inflation read, and 7.4% annually. All in all, If hotter reads come through, it could validate the RBA hiking rates next week and see the AUD knee-jerk higher. However, near term downside is alive as commodity prices continue to retreat. Plus, AUD failed to close above the April 14 high of 0.6806 last week, so the April low could be reachable. And downside could pick up if a weaker CPI read come through, as it will likely keep the RBA in pause mode, next week. Also note leveraged funds increased their short positions in the AUUSD for a second week.

Over the longer term though, Saxo’s house view is that China’s economy will outperform this year, and this should theoretically support the AUD. Plus commodity prices are widely expected to pick up later this year, supported to Chinese growth picking up. And if you add a potential Fed cut, we could see a downtrend in the overvalued USD.

US earnings wrap: how is it going so far?

So far this US quarterly earnings season 87 out of the S&P500 have reported results and 73% beat expectations. That said, overall aggregate earnings have declined 1.6% in the quarter. The Materials sector has seen the biggest drop in aggregate earnings, falling 43%. Tech earnings declined 36% on average. Meanwhile in positive news, Industrials reported the most average earnings growth of 47%, with Alaska Air reporting that demand has returned to pre-pandemic levels.

US earnings this week; and why risk appetite for downside protection is rising

This week, we will get a big reality check, with 170 members of the S&P500 reporting results and a lot of those being blue chips. Five of the 10 biggest companies in the MSCI all world Index report, including Microsoft, Amazon, Alphabet, Meta and Exxon. Earnings misses, on already revised-down earnings estimates could really threaten stock prices.

Analysts are expecting tech profits earnings to see the biggest drop since 2009, as big tech’s customers are curbing spending on software, cloud and advertising services, given they’re pinched by inflation and higher borrowing costs.  So, focus will be on commentary about how cost-reduction measures, such as mass layoffs have helped ease margin pressures.

Tech stocks in the S&P500 are trading at 25 times prospective earnings, and some traders think this is too expensive given earnings growth is going backwards (with average tech earnings growth down 37% far out). As such, some option traders have increased their bets of a pull back in the Nasdaq 100. The cost of contracts protecting against a 10% decline in the Invesco QQQ Trust, the largest ETF tracking the Nasdaq 100 Index, is now 1.7 times more than the cost of options that profit from a 10% rally.

Big tech companies – what to watch, Microsoft, Alphabet, Meta, Amazon 

Microsoft (MSFT) reports on Tuesday and expected to report a decline in PC sales and a slowdown in cloud services, which will likely continue to weigh on the top-line, with consensus forecasting the smallest constant-currency revenue growth since 2017. AI enhancements to its search engine, Bing are not likely to translate to sizable sales growth for the company in the near term, but, forward commentary will be watched like a hawk, given Bing is touted to potentially threaten Google’s search dominance. This could be a catalyst for higher forward revenue from advertisers.

Alphabet’s (GOOGL) also reports on Tuesday, and growth is likely to remain dull, with a pullback in ad spending, particularly by the financial sector, adding to headwinds, while its core search-ads business si expected to remain pressured by macroeconomic uncertainty.

Meta Platforms (META) could be the shining light for big tech, when they report on Tuesday. Operating margins is widely expected to expand sequentially by 18% and see Meta return to growth after four quarters of declines. Weak engagement on the Facebook app remains a real drag on Meta’s ad-impressions growth, but there has been increasing contribution from Instagram Reels, WhatsApp and messaging ads. So focus will be on that translating in the numbers.

Amazon (AMZN) is widely expected to report its the weakest quarterly revenue growth on record on Thursday. Until we see cloud-services momentum re-accelerating, it’s possible operating margins will remain under pressure.

This week’s key earnings releases

 

Monday 24 April

  • Coca-Cola (KO)
  • Whirlpool (WHR)
  • First Republic Bank (FRC)

Tuesday 25 April

  • Alphabet’s (GOOGL)
  • Microsoft (MSFT)
  • General Motors (GM)
  • Raytheon (RTX)
  • United Parcel Service (UPS)

Wednesday 26 April

  • Meta (META)
  • Boeing

Thursday 27 April

  • Amazon (AMZN)
  • Caterpillar (CAT)
  • Northrop Grumman (NOC)
  • Merck (MRK)
  • Capital One Financial (COF)

Friday 28 April

  • Exxon (XOM)
  • Chevron (CVX)
  • Colgate-Palmolive (CL)

 

This week’s economic key events


Monday 24 April

  • Germany IFO business climate (Apr)

Tuesday 25 April

  • US New home sales (Mar)
  • US Conference Board consumer confidence (Apr)
Wednesday 26 April
  • Australia CPI (Q1)
  • US Durable goods orders (Mar)

Thursday 27 April

  • US GDP (Q1)
  • Eurozone Consumer confidence (Apr)
Friday 28 April
  • Bank of Japan policy meeting
  • US PCE deflator (Mar)
  • US Employment cost index (Q1)
  • Germany, France, Eurozone GDP (Q1)
  • Germany, France CPI (Apr)

Sunday 30 April

China manufacturing and non-manufacturing PMI (Apr)



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