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

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

APAC Strategy Team

Summary:  Market participants will closely scrutinize the CPI, University of Michigan Sentiment Survey and retail sales data scheduled to release this week to assess the probable path of the Fed’s policy actions beyond its July meeting at which the Fed is on track to hike by 75 basis points. While China is scheduled to release Q2 GDP, credit and activity data, the focus of the market is likely to be on how the resurgence of Covid-19 cases evolves.

The US inflation release will be a major catalyst; for two reasons

As the Fed has committed to an increasingly hawkish stance. But the question about a hard landing in is getting louder. The Fed’s stance will be tested this week if June’s inflation data is released (on Wednesday) shows inflation is easing. Firstly the release will show; which path the Fed may take with its target in the coming months. And secondly, it will either validate this latest equity market rally based on disinflationary pressures easing. However, if the numbers are hotter than expected, then markets will likely unwind the rally. Why? It will justify a 0.75% Fed rate hike at the Fed’s July meeting and more for longer beyond will be valid. Bloomberg consensus estimates expect June CPI 8.8% y/y, up from 8.6% y/y in May. June Core CPI at 5.7% y/y from 6.0% in May). As discussed in our Q3 outlook released last week, inflation is a runaway train and central banks will have to get aggressive to try get it under control, even if that means an economic derailment/slowdown. Wage pressures also remain on watch, especially as there have been reports of layoffs especially in the tech sector, and wage inflation needs to be curbed somewhat to ease price pressures.

Retail sales to show if US household consumption is rolling over

The U.S. nonfarm payrolls report shows US jobs growth is growing stronger than expected, with a gain of 372K jobs in June (vs Bloomberg consensus 265K).  The report signaled that the U.S. labour market has yet to cool down materially. Average hourly earnings rose 5.1% YoY in June. With hourly earnings growth lagging behind CPI, the market will pay much attention to this week’s retail sales data to diagnose the strength of household consumption.  Also coming out this Friday, the industrial production data will inform us further for the soft-landing or recession debate.

University of Michigan sentiment survey on watch

The U.S. recession rhetoric – which has gathered steam since the last inflation print – will also be tested further as the initial print of University of Michigan sentiment survey for July is released at the tail end of the week. On top of the headline sentiment index, market participants will focus on the 5-10-year inflation expectation in the survey (Bloomberg consensus 3%, 3.1% in June). 

Downward earnings revisions could be the next disappointment for U.S. equities

Aside from CPI, our view is earnings will be one of the biggest focus points for markets this week. As mentioned previously S&P500 earnings estimates linger in record territory. The risk here is if companies don’t match or beat Q2 estimates, and if forward guidance levels are downgraded (which is highly probable), then the market will likely see a sell off. The focus on earnings will be business commentary and company’s outlooks. At Saxo, we think the same theme of Q1 will continue for Q2, energy companies be the standout, while other sectors will be likely to guide for margin squeezes, making downgrades and passing on higher costs. In Q2 metal commodities will also likely see huge drops in earnings, and disappointing guidance levels. Our view is interest rates sensitive sectors remains the most vulnerable (tech, consumer discretionary, real estate). Energy and defence may be bright spots, while other sectors will likely see downward revisions of 2022 EPS growth forecasts. Bloomberg EPS growth estimates currently stand at 20% for the S&P500. Figures will ex energy will likely be in single digits or even declines. And that will put downward pressure on stocks.

Companies reporting this week to watch to watch

In finance and banking; JPMorgan (JPM.xnys), Morgan Stanley (MS.xnys), Wellsfargo (WFC.xnys) and Citi (C.xnys) report which will be watched as for what they guide for 2022. We expect bad debt provisions to be announced.   In health; UnitedHealthcare (UNH.xnys) reports. And in consumer business Pepsi (PEP.xnys) reports, along with Delta (DAL.xnys).


Europe gas supply issues to get a leg up

As Europe’s energy crisis continues to remain a key concern, we now have Russia shutting off gas supplies through Nordstream 1 on Monday for ‘maintenance’. There is increasing risk that this maintenance may become a more permanent shutoff as Russia aims to use gas supplies as a weapon in the current raging war. This could mean a further run higher in Dutch TTF gas futures, and may force more European utility companies to go for government bailouts and natural gas dependent industrial companies such as BASF to shut down some of their operations. All of this points to deeper recession concerns for the Eurozone, and a tougher task for the European Central Bank as it gets closer to its July policy meeting.

Asia’s inflation to continue to get hotter

Japan reports producer prices in the week ahead, which may cool off slightly as government support measures continue to help. Prime Minister Fumio Kishida increased fuel subsidies in a raft of measures announced in late April to ease the pain of rising prices ahead of key national elections which were held on Sunday. Still, the weaker yen and the still-high crude oil prices suggest upward pressure will remain and continue to challenge the Bank of Japan’s accommodative policy settings. Meanwhile, India’s headline inflation is set to remain above the central bank’s target range, and this will create more tightening pressures on the Reserve Bank of India.

China’s Q2 GDP expected to decline on a Qtry basis while June activity data set to recover

With much of the country, including the important industry and financial hub, Shanghai having been locked downed for 2 months, China’s Q2 real GDP is expected to decline (Bloomberg consensus -2.3%) on a seasonally adjusted quarter-on-quarter basis.  On a year-on-year basis, Bloomberg consensus is calling for a rise of 1.0% for China’s Q2 real GDP.  As most of the lockdowns were lifted in June, retail sales and industrial production are expected to rebound notably during the month.  Aggregate financing and new loan data will likely bounce as well due to local government bond issuance and the Chinese authorities urging banks to lend.  Lifting of lockdown and relaxation of property policies would have help lifted loan demand in June as well.

Singapore’s real GDP expected to grow in Q2

Singapore is scheduled to release advanced real GDP for Q2 this Thursday.  A recovery in tourism related industries and still solid industrial production are expected to help to lift real GDP growth (Bloomberg consensus +1.0% SA QoQ; +5.4% YoY).

Bank of Korea is meeting this week

The market is expecting the Bank of Kore to raise rate by 50 basis points, brining its policy 7-day repo rate to 2.25% when they meet this Wednesday, as per Bloomberg survey.

Kuroda speaking on Monday and U.S. Treasury Secretary Yellen visits Japan on Tuesday

Governor Kuroda is making a speech on Monday at 11:00a.m. Tokyo time.  The market will focus on Kuroda’s remarks, if any, on inflationary pressures. U.S. Treasury Secretary Janet Yellen will visit Japan on Tuesday and Wednesday ahead of the G20 Finance Ministers and Central Bank Governor Meeting in Bali, Indonesia on Friday.  While it is unlikely that there will be any concerted action between the U.S. and Japan on currencies, market participants will scrutinize closely what the officials from both sides say. 

Amazon Prime Day another sign the consumer is fatigued and is shifting their spending to necessities

Amazon will be launching Prime Day, 12 July, which is its biggest sales event. New sales records are made each year, but event we think will be its first slow down and show us where consumer spending is headed. Our analysis reveals; Monthly credit card spending in is now growing at half the pace it was across 2021 (as at May). Plus, the consumer is grappling with runaway record inflation. Rising food and energy costs prompted consumers to tighten their purse strings and change their spending patterns and we think this could continue YOY for as long as inflation persist. Necessity spending has seen the most growth. Fuel and convenience sales (+42.1% YOY) while Grocery spending rose 14% YOY in June. And e-commence spending only rose a mere 1.1% YOY (at June). Additionally, with freedom from lockdowns, spending on services, such as travel, leisure and dining, rather than online goods has increased. Airline spending jumped 18.2% YOY, while lodging/accommodation spending soared 33.7% YOY in June. And in store fashion forward sales in rose; Jewelry sales gained 16.2% YOY, department stores sales rose 8.6% YOY. Looking forward, consumers may also find sales offers far less attractive, which will likely further stunt consumer recessionary stocks.

Key economic releases & central bank meetings this week

Monday Jul 11

China: Aggregate social financing, new RMB Loans & money supply (Jun)
Japan: Machinery orders (May)

Tuesday Jul 12

AustraliaConsumer confidence index (Jul)
Australia: Business confidence index (Jun)
South Korea: Money supply (May)
India: CPI (Jun)
India: Industrial production (May)

Wednesday Jul 13

U.S.: CPI (Jun)
Eurozone: Industrial production (May)
China: Exports, imports & trade balance (Jun)
South Korea: Bank of Korea meeting, Unemployment rate (Jun)
New Zealand: Reserve Bank of New Zealand meeting

Thursday Jul 14

Australia: Unemployment rate (Jun)
Japan: Industrial production (May final)
Singapore: Real GDP (Q2 Advance)
India: Exports, imports & trade balance (Jun)
India: Wholesale price index (Jun)

Friday Jul 15

G20: Finance Ministers and Central Bank Governor meeting
U.S.: Retail sales (Jun)
China: Real GDP (Q2)
China: Retail sales (Jun)
China: Industrial production (Jun)
China: Fixed asset investment (Jun)
Japan: Tertiary activity index (May)
New Zealand: Business manufacturing PMI (Jun)
 

Key earning releases this week

Tuesday Jul 12:  PepsiCo (PEP.xnys)

Wednesday Jul 13: Delta Air Lines (DAL.xnys)

Thursday Jul 14: Fast Retailing (9983.xtks), JPMorgan Chase (JPM.xnys), Morgan Stanley (MS.xnys), Conagra Brands
(
CAG.xnys), TSMC (2330/TSM.xnys)

Friday Jul 15: UnitedHealth Group (UNH.xnys), Wells Fargo (WFC.xnys), Charles Schwab (SCHW.xnys), BlackRock (BLK.xnys), Citigroup (C.xnys), US Bancorp (USB.xnys), Bank of New York Mellon (BK.xnys), State Street (STT.xnys)

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