Saxo Spotlight: What’s on investors & traders radars for the week; China GDP, BOJ meeting, Aus employment
Macro

Saxo Spotlight: What’s on investors & traders radars for the week; China GDP, BOJ meeting, Aus employment

APAC Research

Summary:  This week focus is on China GDP, the BOJ meeting, UK CPI and labor market data and the course for the GBP, plus Australian employment data - could it tip the AUD over 70 Us cents? In equities US shares close at their highest level in a month with the S&P500 a whisker from 4,000, while the Australian share market is just over 2% from its record high. China's market outperform in 2023. Consensus estimates suggest the most earnings growth could come from Mining stocks exposed to China's reopening, with 70% EPS expected.

January 16th to 20th

Nasdaq continues to rise for the second week, volatility falls to lowest level in a year; Could tech earnings rise 27% this year as the market expects?

Nasdaq 100 (USNAS100.I) closed higher for the second week, with the volatility (VIX) index a measure of fear, closing at its lowest level in a year as investors bet slowing US inflation could bring the Federal Reserve to the near end of its interest-rate hikes. As such equity investors may be expecting a break from the market turmoil. The Nasdaq is still down 29% from its high, with the technical indicator, the RSI on the weekly charts suggesting buying could potentially pick up this week. In the Nasdaq 100, consensus expects earnings grow of 13% this year. However, in the broader S&P500 Tech earnings are expected to rise 26.7% this year, despite slight downgrades of late in lieu of some Fed speakers saying US interest rates could top over 5% this year. The broader S&P 500 last week, closed up 2.7%, its second positive week and is up 4% for the year, putting it just 15% off its record high. As for broad S&P500 earnings this year, the market expects 25% EPS growth, with Real Estate, Industrials and Information Technology, Consumer Discretionary to see most. This is largely as consensus thinks the Fed could cut rates in July. This week, eyes will be on earnings from big banks including Morgan Stanley, Goldman Sachs on Tuesday, and Netflix on Friday. For more on earnings click here.

 

Bank of Japan will prove to be the next event risk for the markets

The speculation is rife for another policy tweak by the Bank of Japan as it meets this week, after a shock decision to increase the upper limit of the trading band for 10-year JGB yields to 0.50% in December from 0.25% previously. Bond yields have since tested the new cap, and breached it as well last week prompting the BOJ to announce unscheduled bond buying worth over 3 trillion yen. A local media report last week also said that the central bank will evaluate the side effects of its massive monetary policy easing, which fuelled further speculation that another policy tweak may be on the cards. Still, BOJ officials may opt to wait to see the full impact of last month’s move before taking another action. Speculation will however continue into ramp up in the run up to Governor Kuroda’s retirement in April. Meanwhile, new quarterly economic projections are set to be released as well this week, and the inflation expectations will especially remain on watch after the December Tokyo CPI touched 4%-levels. Overall CPI for December is due on Friday, and is likely to show a further acceleration as well. 

Comments from the Davos forum on watch 

The World Economic Forum’s annual meeting kicks off in Davos, Switzerland this week. The theme this year is “Cooperation in a Fragmented World’, suggesting deglobalisation trends remain key to watch as has been a regular theme at Saxo. The meeting brings together heads of nineteen central banks and 56 finance ministers. Comments on key global issues, ranging from inflation to recession, as well as energy and food crisis will remain on watch. Geopolitical crisis will also constitute a key discussion as the war in Ukraine rages on and US-China tensions may come back in focus. 

 

China GDP and activity data, LPR announcement

While the reopening of China from Covid containment is a highly positive development for the Chinese economy, the initial shockwave of infections could be significantly disruptive to economic activities in the near term. The median forecast of economists surveyed by Bloomberg on China’s Q4 GDP growth is 1.6% Y/Y decelerated from 3.9% Y/Y in Q3. Disruption in production activities resulting from infection-induced absence from work is expected to drag the growth of industrial production to 0.1% Y/Y in December from 2.2% in November. Retail sales are expected to shrink 9% Y/Y in December, decelerating further from -5.9% Y/Y in November as dining, retailing, and deliveries were slowed by inflection. Full-year fixed asset investment is expected to come at 5%, down from 5.3% in the first 11 months of the year. On Friday, Chinese banks are scheduled to fix their 1-year and 5-year loan prime rates and no adjustment is expected.

Australia’s share market a touch away from a record ; gold stocks charge. What’s ahead for 2023

The Australian share market (ASXSP200.I) opened 0.8% higher on Monday with interest rates sensitive stocks charging the most, in anticipation of the Fed’s likely downshift in policy following on from last week's roll over in monthly CPI. The Aussie share market is trading at a two week highs, just a puff or 2.6% from its record high. The most momentum in 2023 so far, is from the Mining sector, up 9%, in anticipation of higher earnings from China’s reopening. Gold stocks are the biggest shiners this year, with the most charge in anticipation of a higher gold price as global growth moderates, while the US dollar and bond yields retreat. At Saxo, we believe Gold may be likely to have a correction in the shorter term, but in 2023 gold should see a strong year of buying amid appetite from global central banks, as our head of Commodity Strategy mentioned.  Silver Lake Resources, De Grey Mining , Remelius Resources, are up 18-23% so far in 2023. As for the overall ASX200 in 2023, consensus estimates suggest earnings could grow 33% this year, which implies Australia’s EPS will outperform the S&P500 (27%) and the Nasdaq 100 (13%).  In Australia, Mining EPS consensus estimates suggest Mining companies will see 72% earnings growth, Utilities 49% earnings, followed by tech and industrials. 


Could UK CPI and labor market data change the course for GBP?

The rally in cable has cooled off recently even as the decline in USD has continued. The pair is looking for direction and there may be some key catalysts to watch this week. Bank of England Governor Andrew Bailey will be speaking today at the Treasury Select Committee hearing on the December Financial Stability report. GBPUSD started the week testing the recent highs near 1.2250 and a break above could bring the mid-December highs of 1.2446 in focus. Focus will turn to economic data thereafter, with labor market data due on Tuesday, CPI on Wednesday and retail sales on Friday. Any signs that labor market is cooling or CPI has topped out could mean the BOE could start to consider a slower pace of rate hikes going forward, and that could see the 200DMA in GBPUSD at 1.2000 get threatened. 

Resources companies: Upgrades to earnings could be on the cards 

In terms of earnings in February, we expect iron ore, copper and aluminum companies to upgrade their 2023 outlooks as these commodities are up +60%, +30%, and +20respectively. For inspiration on Australian resources companies, see Saxo’s Australian Resources theme basket for ideas. There you will see most stocks are strongly rallying this year expecting higher free cash flows amid China easing restrictions sooner than expected. The Iron ore (SCOA) price, and copper price both trade at 6-month highs. BHP shares in Australia and Rio Tinto for instance, trade in new record high territory, with both iron ore, and copper giants trading higher in anticipation of higher free cashflow. If we see earnings upgraded, we may also see their share prices move higher. However a risk to the downside, is that the iron ore price may be due for a potential correction after falling 3% on Monday after China’s NDRC accused participants of price gouging. If the iron ore price continues to fall and corrects, it could also likely trigger a shorter term pull back in the big miners shares as well. That’s something to keep on your radar.

AUDUSD clears 70.00 US; employment data a focus ahead. Iron ore prices falls adds pressure

Focus is on the employment data this week with the market looking for the unemployment rate to remain at 3.4%, while 22,500 jobs are expected to have been added to the Australian economy in December, which would mark a decline from the prior month. If more less jobs are added, it would support a likely knee-jerk reaction and fall in the AUDUSD. However if more jobs are added than expected, which may be unlikely, then the AUDUSD could continue to rally up. Medium to longer term support seems in place for the pair as US CPI monthly data showed US prices have continued to fall, and the US dollar vs the AUD continued its fall and is now 11% off its peak. While AU eco data; from Australia's trade surplus to Aussie retail and the all important CPI all have shown that the Aussie economy is stronger than the RBA anticipates, which implies the RBA can continue to rise interest rates, as such this supports upside. Also upside appears there for the AUD amid China’s reopening, with a likely 1% addition to GDP from China trade (extra hot sauce from Coal buying resuming). Today the AUDUSD cleared over the 70.00 US hurdle. However, beware of potential short term risk, if commodity prices correct, which could pull the AUDUSD from its high, especially as China is accusing participants of iron ore price manipulation. If the iron ore price continues to retreat from its 6-month high, then the AUDUSD may see a short-term correction, before likely heading higher amid China's reopening.  

US retail sales and earnings will put the focus on consumer strength

There is no Tier 1 economic data due in the US this week, but focus will be on retail sales and PPI. Retail sales in the US posted their largest decline in 11 months in November and a similar drop in December would add to recent indications that the Federal Reserve’s aggressive rate hikes are cooling the economy.

On the earnings front, results from Procter & Gamble (PG:xnys) and Netflix (NFLX:xnas) will shed some light on global consumer strength. P&G reports Q4 earnings on Thursday before the market opens with analysts expecting revenue growth of -1.1% y/y and EPS of $1.59 down 4% y/y suggesting that volumes are being hit by inflation and that analysts expect P&G to see their operating margin decline q/q. The potential upside for P&G on its outlook is the reopening of China.

Netflix reports Q4 earnings on Thursday after the market close with analysts expecting revenue growth of 1.7% y/y as streaming services are still facing headwinds post the pandemic. EPS is expected at $0.51 down 67% y/y. The things to focus on for investors are user growth, updates on its advertising business, and user engagement figures relative to recent content launches.

Key earnings due this week

  • Tuesday: Sartorius Stedim, Morgan Stanley, Goldman Sachs, Interactive Brokers

  • Wednesday: EQT, Charles Schwab, PNC Financial Services, Kinder Morgan

  • Thursday: Procter & Gamble, Netflix

  • Friday: Investor, Sandvik, Ericsson, Schlumberger

Key economic releases & central bank meetings this week

  

Monday 16 January

  • US Market Holiday

  • Japan Corporate Goods Prices (Dec)

  • South Korea Export and Import Growth (Dec)

  • Indonesia Trade Balance (Dec)

  • India WPI Inflation (Dec)

  • Germany ZEW Economic Sentiment (Jan)

  • Canada Manufacturing Sales (Nov)

Tuesday 17 January

  • Singapore Non-Oil Exports (Dec)

  • China (Mainland) Retail Sales, Industrial Output and Urban FAI (Dec)

  • China (Mainland) GDP (Q4)

  • Germany HICP (Dec, final)

  • United Kingdom PPI (Nov)

  • United Kingdom Labour Market Report (Nov)

  • Canada CPI (Dec)

Wednesday 18 January

  • Taiwan Market Holiday

  • Japan Machinery Orders (Nov)

  • Malaysia Trade (Dec)

  • Taiwan Jobless Rate (Dec)

  • Eurozone HICP (Dec)

  • United States PPI (Dec)

  • United States Retail Sales (Dec)

  • Canada Producer Prices (Dec)

  • United States Industrial Production (Dec)

  • United States Capacity Utilization (Dec)

  • United States Business Inventories (Nov)

  • United States NAHB Housing Market Index (Jan)

  • Japan BOJ Rate Decision

  • United States Fed Beige Book

Thursday 19 January

  • Taiwan Market Holiday

  • Japan Trade (Dec)

  • United Kingdom RICS Housing Survey (Dec)

  • Australia Employment (Dec)

  • Malaysia Policy Rate (19 Jan)

  • Norway Key Policy Rate (19 Jan)

  • United States Building Permit and Housing Starts (Dec)

  • United States Initial Jobless Claims

  • Canada Wholesale Trade (Nov)

  • Indonesia 7-Day Reverse Repo (Jan)

Friday 20 January

  • Taiwan Market Holiday

  • Japan CPI (Dec)

  • United Kingdom GfK Consumer Confidence (Jan)

  • China (Mainland) Loan Prime Rate 1Y and 5Y (Jan)

  • Germany Producer Prices (Dec)

  • United Kingdom Retail Sales (Dec)

  • Canada Retail Sales (Nov)

  • United States Existing Home Sales (Dec)

  • Thailand Manufacturing Production (Dec)


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