World Week Ahead: US earnings, China’s trade balance

Monday 11th January 2016

After last week’s carnage on global equity markets, investors are eyeing US corporate earnings for any reason to lift the mood, while China’s latest trade data, due on Wednesday, will also be scrutinised.

Last week, the Dow Jones Industrial Average sank 6.2 percent, while the Standard & Poor’s 500 Index slumped 6 percent. Both suffered the worst start to a year on record. The Nasdaq Composite Index plunged 7.3 percent.

A better-than-expected US jobs report on Friday failed to bolster Wall Street as concern about China’s struggle to contain its plunging stock market pushed back to the forefront. US employers added 292,000 jobs in December, while the unemployment rate held at 5 percent as more people began looking for work.

"This is a tsunami of negative psychology being driven by China," Phil Orlando, chief equity market strategist at Federated Investors in New York, told Reuters.

US Treasuries climbed for the week as investors sought refuge, pushing the yield on the 10-year note 15 basis points lower in the past five days. Also, concern about the global economy might give the US Federal Reserve pause when it comes to interest rate increases.

“There’s not as much confidence in the scenario that says everything’s going to be fine,” Jeffrey Rosenberg, chief investment strategist for fixed income in New York at BlackRock, told Bloomberg. “Rates are not going to end up significantly higher if China, commodity and credit fears end up becoming a much bigger issue.”

Fresh clues on the Fed’s view might come from a slew of officials scheduled to speak in the coming days including Atlanta Fed president Dennis Lockhart and Dallas Fed president Rob Kaplan today; Richmond Fed president Jeffrey Lacker on Tuesday; Boston Fed president Eric Rosengren and Chicago Fed president Charles Evans on Wednesday; St Louis Fed president James Bullard on Thursday; and New York Fed president William Dudley on Friday.

The Fed also releases its Beige Book on Wednesday.

Meanwhile, US President Barack Obama is set to deliver his final State of Union address on Tuesday.

Alcoa, scheduled to report its latest quarterly results on Monday after the market close, unofficially kicks off a fresh US earnings season.

“There is cautiousness about the earnings season,” Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York, told Reuters."

Indeed, fourth quarter earnings are now expected to drop by 4.2 percent, down from a 3.7 percent decline expected a week ago and the 1.1 percent increase expected on October 1, according to Thomson Reuters data.

The latest US economic data will arrive in the form of the NFIB small business optimism index, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, import and export prices, due Thursday; and the producer price index, retail sales, Empire State manufacturing survey, industrial production, consumer sentiment, as well as business inventories, due Friday.

Analysts remain concerned about oil. Last week oil sank 10 percent amid concern about the global glut at a time a key consumer, China, is increasingly struggling.

“The sentiment is still extremely negative and short positions are still at excessive levels,” Hans van Cleef, senior energy economist at ABN Amro, told the Reuters Global Oil Forum. “That makes it also hard to pinpoint the timing of the expected recovery.”

In Europe, the Stoxx 600 Index dropped 6.7 percent last week. That was its largest weekly slide since August 2011, according to Bloomberg. European Central Bank policy makers are set to gather on Thursday, as will their counterparts at the Bank of England.

The ECB will also publish minutes from its December meeting, when it lowered the deposit rate and extended its bond-buying programme, but failed to boost its asset purchases.

“Clearly the ECB disappointed in December, and we will get an insight about what went on,” Vincent Chaigneau, global head of rates and foreign-exchange strategy Societe Generale in London, told Bloomberg. Since then, “the one thing that has happened in particular is the pullback of inflation breakevens. This is something that is going to worry the ECB. Going forward, they will have to keep the door open to more easing.”

Europe’s latest economic data slated for release this week include the euro-zone Sentix investor confidence, due today; euro-zone industrial product, due Wednesday; and euro-zone trade balance, due Friday.

BusinessDesk.co.nz

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