The third week of 2022 will actually open the reporting season for the 4th quarter that began last Friday, with 8% of the S&P 500 in terms of market capitalization reported this week. The forward forecast around the profit margin will be important in light of the effect of the increase in production materials / output. A wealth of macro data on the European continent (ZEW survey, registration of new vehicles, consumer confidence) will shed light on the economic impact of the spread of the omicron variant. Meanwhile in the Asian continent we saw the Chinese central bank make an unexpected interest rate cut to interest rates for a period of one year, after the publication of GDP data for the 4th quarter which indicated a continuing weakness. In Japan the meeting of the Japanese central bank on Tuesday will be in focus in search of some correction in its policy regarding risk in the price index and devaluation of the wine currency. On another issue the geopolitical news between Russia and Ukraine may be the leading factor in the global markets in the short term.
Geopolitics weighs on market sentiment
The geopolitical tension we described in our Insights Report was at the center again and affected sentiment in the markets towards the previous trading weekend. Talks between Russia and NATO have failed to resolve disputes over Ukraine. While the corridor for diplomatic talks remains open, given the significant disputes between the parties, the risk has certainly risen. Russia (MOEX) was down 1.4% and 2.7% respectively. The Russian-ruble fell by 2.1% against the dollar while the yield on the 10-year US and German government bond fell by 3.8 and 3.1 basis points respectively during Trading Day.
The Bottom Line: Recent developments and news on this front may dominate the markets in the short term.
China’s growth is slowing and monetary stimulus is on the way
China this morning reported GDP data for the 4th quarter which showed a 4% increase over the same period last year, above expectations in markets which stood at 3.6% but lower than growth in the previous 3rd quarter which stood at 4.9%, the third consecutive quarterly slowdown In growth. Power outages adversely affected industrial production in the quarter while a new wave of Corona virus adversely affected private household consumption. The real estate sector pulled down growth with low sales and declining investment. To support the economic slowdown, the Chinese central bank unexpectedly cut interest rates for a one-year period by 10 basis points to 2.85%. Looking ahead we think that the product in the 1st quarter may remain weak in light of the rigid closures with the possibility of further monetary and fiscal measures to provide support to the economy.
The Bottom Line: China’s growth forecast may improve gradually later this year with government measures to boost the economy.
Banks in the United States are opening the reporting season for the 4th quarter.
The reporting season for the 4th quarter in the United States kicked off on Friday with a number of notable banks reporting their results. This week an additional 8% in terms of market value from the 500s CPI index will publish results. The consensus in the market is for a quarterly aggregate profit of $ 51.32, an increase of 21.3% over the same period last year which includes an impact of the corona, but a decrease of 4.7% from the profit in the 3rd quarter which stood at 53.86 and indicates a continued slowdown in profit growth. The energy and manufacturing sectors are expected to record the highest increase in profitability in the 4th quarter while the infrastructure and financial sector has the lowest growth. The consensus regarding an increase in revenue stands at 12.9% compared to the same period last year and compared to a growth of 17.8% in the previous quarter. The energy and materials sector is expected to show the highest growth in revenue while the infrastructure and basic consumption sector has the lowest growth rate. Faced with ongoing supply problems, rising raw material and transportation prices as well as a crowded labor market, the forecast regarding pressures on companies ’profit margins will receive special attention. So far the companies have managed to manage the profit margin surprisingly well but further improvement may turn out to be a battle that is hard to beat.
The Bottom Line: Important macro factors and preliminary reports indicate that the profitability of the companies may surprise upwards again.
Macro data from the eurozone
The economic diary this week includes the final figure of the Consumer Price Index for December, listing of new cars and sentiment regarding consumers and businesses. The attention of the markets will be on business expectations as reflected in the ZEW survey for Germany and the eurozone as a whole. With the accumulation of the Omicron variant’s acceleration, these indices recorded a significant decline in the last quarter to a level of 26.8 in the eurozone and 29.9 in Germany in December. Touch restrictions weighed heavily on the services sector while high energy prices and supply problems hit the manufacturing sector. The sentiment recorded a particularly strong hit in the sectors – vehicles, metals, machinery, and consumption / retail towards the end of last year. Meanwhile, containment attempts to spread the virus have increased and the number of people infected and in self-isolation is increasing. Improving sentiment and indices in order to support the financial markets did not seem feasible during this period.
The Bottom Line: The sentiment figures that are expected to be published in the coming week are expected to remain under pressure.
Bank of Japan – The forecast report is in focus.
The Bank of Japan will hold its next monetary meeting on January 17-18 and will publish its forecast report. No change in the bank’s monetary policy is expected as the bank is expected to continue to gradually lower its financial support program for dealing with the corona as announced at the last meeting. The Yield Control Target (YCC) is expected to remain intact. The forward forecast report is expected to be in focus due to the expectation that the bank may abandon its long-term view regarding price risk with rising inflationary pressures around the world when Japan is not exceptional. This will be the first change in his view since October 2014. The remarks of the governor of the Koroda Bank at the post-meeting press conference will be closely monitored as to how the renewed devaluation of the wine currency may affect monetary policy and the future economy.
The Bottom Line: Attention will be drawn to any change in the Bank’s forecast and Koroda’s comments on the Japanese wine currency