Connect with us

Economics

Week Ahead – Interest rate anxiety heightened

Can earnings season soothe investors’ nerves? It’s been a turbulent start to the year in the markets and that’s unlikely to change as we move into…

Published

on

This article was originally published by Market Pulse

Can earnings season soothe investors’ nerves?

It’s been a turbulent start to the year in the markets and that’s unlikely to change as we move into earnings season. Fear of high inflation and accelerated monetary tightening is driving much of the volatility that we’re seeing in financial markets over the last couple of weeks and that’s unlikely to abate any time soon, with peak inflation still probably ahead of us.

Earnings season could go some way to easing the nerves in the coming weeks as we get a reminder that the economy is still in a strong position despite the challenges it’s facing. But even this comes with an element of uncertainty given that omicron hit in late November which will undoubtedly have had an impact. Of course, as we’ve seen the last two years, there are also winners when consumers stay at home and restrictions are imposed.

Ultimately though, central banks remain at the top of the list for investors right now and next week offers a selection of meetings, minutes, and speakers that will surely attract a lot of attention. It’s hard to look past the CBRT on Thursday as being one of the highlights next week. After an aggressive easing cycle that’s come at a huge cost, will the central bank finally slam on the breaks?

Banks get earnings season underway

Lira steadies ahead of CBRT meeting

Chinese data to start the week

US

The upcoming week is busy with economic data and earnings results.  Goldman Sachs, Bank of America, and Morgan Stanley will close out earnings for the big banks, while Procter & Gamble may give a better look at how much further price increases the consumer may have to expect.  On Tuesday, the Empire Manufacturing Index should show activity cooled in January.  Wednesday is all about housing activity that might show both building permits and housing starts edged down.  On Thursday, initial jobless claims are expected to resume declining, while the Philadelphia business outlook is anticipated to improve, and Existing home sales may show a small decline.  

The blackout dates are in effect for the Fed, so it will be quiet until the January 26th FOMC meeting. With financial markets pricing in over a 90% chance that the Fed will raise rates in March, Treasury yields appear to be forming a range just below the 1.80% level.     

EU 

With the ECB being among the minority of central banks still singing from the transitory hymn sheet, the focus next week will be on the ECB accounts from December, comments from policymakers including President Christine Lagarde on Monday, and the final inflation numbers for December. At 5%, inflation is uncomfortably high and the central bank may soon finally buckle like the rest if pressures don’t soon ease.

UK

The data dump week for the UK, with labour market, inflation, and retail sales all being released. But Wednesday is undoubtedly the standout, with Governor Bailey due to speak hours after the CPI release which could make for some interesting comments. Three or four rate hikes are expected this year so expectations are quite hawkish but as we’ve seen recently, there is a growing fear that more will be warranted.

Russia

No major data or economic events next week so the focus will remain on the various geopolitical risks that Russia has found itself at the centre of. A possible invasion of Ukraine is very much top of the list, with the week of intense talks between the US and Russia seemingly failing to lead to any breakthrough. 

Russia is also intrinsically linked to the energy crisis in Europe which is intensifying as more outages in French reactors put further pressure on limited reserves.

South Africa

Inflation data next week is expected to show price pressures increasing, with the CPI rising to 5.7% which will increase calls for more rate hikes from the SARB.

Turkey

A rare period of relative stability for the lira which is unlikely to last, as the CBRT meets next week. Can the central bank resist the urge to cut again or are more sharp losses on the horizon? Not cutting could provide some support for the lira as it may signal an end, for now, of the easing cycle. 

China

China releases fourth-quarter GDP and Retail Sales on Monday. The markets are braced for a downturn in growth, with a consensus of 3.5%, down from the gain of 4.9% in Q3. This would mark the weakest GDP report since Q2 2020.

Retail Sales are forecast at 3.8% y/y in December, down from 3.9% beforehand. The government has enacted a zero-Covid strategy, which has restricted travel and dining out. Slow income growth is also hurting consumers and has put a dampener on consumer spending.

China’s property sector remains in deep crisis, with no signs of any improvement on the horizon. Evergrande and other developers owe billions and investment growth and household loans have decreased. The government has eased restrictions on real estate funding but these measures have so far proven ineffective.

China house price index is released on Saturday which could put a dampener on the open if it’s particularly bad news. The previous release showed 3% growth though and it’s widely regarded as low impact data. 

Also on Monday, ahead of the GDP release, the PBOC will decide whether to maintain the MLF rate at 2.95%.

India

No major economic data or events next week.

Australia 

Australia releases key employment data for December next week. Employment change is expected to slow to 60,000, down from 366,100 in November. The unemployment rate is forecast to ease to 3.5%, down from 3.6%.

Iron ore prices rose to their highest level in three months, as heavy rains engulfed Brazil’s mining region, which has sparked supply concerns.

New Zealand

It’s a quiet economic calendar next week. On Thursday, New Zealand releases the BusinessNZ Manufacturing PMI for December. The PMI was stagnant in November, with a reading of 50.6 points.

Japan

Inflationary pressures in Japan are much lower than those in the UK or the US, but inflation is nonetheless moving higher after years of deflation. The Bank of Japan is expected to maintain its ultra-loose policy at its meeting on Tuesday, but will likely revise up its view of inflation risks for the first time since 2014. 

Inflation remains well below the bank’s target of 2%, but the BoJ could look to raise interest rates before it achieves it.


Economic Calendar

Saturday, Jan. 15

Economic Data/Events

China new home prices

Sunday, Jan. 16

The US’ National Retail Federation opens its annual Retail’s Big Show expo at Javits Center, New York  

Monday, Jan. 17

Economic Data/Events

US equity and bond markets are closed for Martin Luther King Jr. holiday

China GDP, retail sales, industrial production, surveyed jobless, property investment, medium-term lending

Handelsblatt Energy Summit with German Economy Minister Habeck

Finance ministers of the Euro region meet in Brussels

Japan PM Kishida speaks to parliament

Canada existing home sales

Poland CPI

Japan industrial production, core machine orders, tertiary industry index

Singapore electronic exports

Russia Trade

Norway Trade

Philippines overseas remittances

UK Rightmove house prices

Switzerland sight deposits, Bloomberg January economic survey

Turkey central government budget balance

Tuesday, Jan. 18

Economic Data/Events

US cross-border investment, empire manufacturing, NAHB Housing Market Index

BOJ Rate Decision: No change to monetary policy, may adjust its view of inflation risks

Japan industrial production, capacity utilization

EU finance ministers meet in Brussels and hold a policy debate on global minimum taxation for multinational companies.

Australia consumer confidence

Canada housing starts

Eurozone new car registrations

Germany ZEW survey expectations

New Zealand house sales

Russia Trade

Mexico international reserves

UK jobless claims, unemployment

Poland CPI

Switzerland producer and import prices

South Africa mining, gold, and platinum production

Turkey house price index

Sweden Riksbank Gov Ingves speaks on a panel at a blockchain and stablecoin conference

Wednesday, Jan. 19

Economic Data/Events

US housing starts

UK CPI, house price index

French President Macron addresses European Parliament

BOE Gov Bailey speaks to UK Parliament Treasury Committee

Canada CPI

Germany CPI

South Africa CPI

Eurozone construction output

Australia Westpac consumer confidence

New Zealand card spending

South Africa retail sales

Russia current account

Bank Earnings from BoA and Morgan Stanley

Thursday, Jan. 20

Economic Data/Events

US existing home sales, initial jobless claims

ECB Minutes to December policy meeting

BOJ Minutes of December meeting

UK RICS house prices

Norway Rate decision: Expected to keep rates steady

Turkey Rate decision: Expected to keep rates steady

Hungary Rate decision: Expected may keep rates steady

Eurozone CPI

Hong Kong CPI

Russia CPI 

Japan Trade

China loan prime rates, swift global payments

Australia unemployment, consumer inflation expectations, RBA FX transactions

New Zealand food prices, ANZ Truckometer heavy traffic

Germany PPI

Taiwan export orders

Mexico unemployment

Spain house transactions, trade

France business and manufacturing confidence

Netherlands unemployment, consumer spending

Poland consumer confidence

EIA Crude Oil Inventory Report

Netflix reports earnings after the bell

Friday, Jan. 21

Economic Data/Events

US Conf. Board leading index

Japan CPI

UK Retail sales

BOE Mann speaks at the Official Monetary and Financial Institutions Forum

Canada Retail

Eurozone Consumer confidence

Bank of Italy releases the Quarterly Economic Bulletin

Turkey Consumer Confidence

New Zealand performance of manufacturing index, net migration

Singapore home prices

Switzerland Money supply

Russia Money supply

Thailand trade, forward contracts, foreign reserves

China FX net settlement

Poland sold industrial output, construction output, employment, PPI

Sovereign Rating Updates

EFSF (DBRS)

ESM (DBRS)

gold
inflation
deflation
monetary
markets
policy
money supply
mining
interest rates
fed
central bank
monetary policy
inflationary

Author: Craig Erlam

Economics

As US Homebuilders Crash, China Property Developers Set To Surge As PBOC Sends “Clear Easing Signal”

As US Homebuilders Crash, China Property Developers Set To Surge As PBOC Sends "Clear Easing Signal"

Over the weekend, we said that as a major…

As US Homebuilders Crash, China Property Developers Set To Surge As PBOC Sends “Clear Easing Signal”

Over the weekend, we said that as a major divergence has emerged between China and the US, where the former is now actively easing – ostensibly to support the country’s reeling property market but also to prevent a complete collapse in GDP, by cutting rates and injecting gobs of new credit – and the former is about to undertake a major tightening cycle, a trade has emerged to capitalize on this divergence whereby one should pair trade a long in beaten down Chinese property developers while shorting US homebuilders…

… this trade is starting to outperform, with US homebuilders tumbling on Tuesday with some builders sinking by the most since May, amid fears of a slowdown in the property market due to higher years.  The S&P Supercomposite Homebuilding Index plunged by as much as 5.2% with all members are trading lower on Tuesday. KB Home was down as much as 8.5% for its biggest intraday decline since May 2021,  LGI Homes down by as much as 7.8%, Meritage Homes lower by as much as 6.4% for its worst intraday decline since May 2021, and Lennar sliding as much as 6.3% to also notch its sharpest decline since May.

Meanwhile, as Bloomberg’s Wes Goodman writes, China stocks may draw some support amid the global market rout, especially if the yuan slides after the PBOC said it plans to use more monetary policy tools to spur the economy. China bonds jumped on Tuesday prior to the announcement, though still supported by the outlook for more easing. The yuan also weakened as the central bank said it will not allow one-way moves in the currency, while Goldman strategists said that the PBOC press conference sent “clear policy easing signals.”

The larger Asia stock market is starting under a cloud following the U.S. rout, triggered by the relentless advance in Treasury yields and forecasts for Fed tightening, while Asian currencies may lose some appeal as the dollar rises. However, keep an eye on China’s property developers now that Beijing has made it clear it will backstop the housing sector and provide support to prevent China’s largest property developer, Country Garden, from becoming the next Evergrande.

And sure enough, a real-time update of the chart shown above shows that the relationship between easing China and tightening US may have now troughed …

… and may be on its way to becoming what we dubbed the “trade of 2022.”

Tyler Durden
Tue, 01/18/2022 – 22:50






Author: Tyler Durden

Continue Reading

Economics

Thinking Can Make It So: The Important Role of Inflation Expectations

The Issue:
Consumer prices rose 7 percent between December 2020 and December 2021, the third month in a row that this year-to-year inflation rate exceeded…

The Issue:

Consumer prices rose 7 percent between December 2020 and December 2021, the third month in a row that this year-to-year inflation rate exceeded 6 percent.  While the proximate causes of current inflation include supply chain disruptions, labor shortages and pent-up consumer spending, a concern is that the expectation of high inflation becomes self-fulfilling and itself contributes to ongoing inflation.

The Facts:

  • Inflation expectations can sometimes become self-fulfilling. Wages, salaries, and prices of many goods adjust infrequently, and are set with an eye towards future prices. Therefore the way inflation expectations are formed matters – if people expect the 2021 inflation rate to continue for the foreseeable future, a 7 percent rise in prices would become “built in” as future prices are set and as wage and salary contracts are negotiated. This will cause inflation to persist even when the economy is no longer “overheating” – similarly to what happened in the 1970s. 
  • The central bank’s commitment to price stability can help anchor inflation. Beginning in the late 1980s, the Fed prioritized price stability, and in 2012 it announced an explicit target inflation rate. These changes are credited with anchoring inflation expectations and reducing inflation persistence.  The Fed’s recent change in its monetary policy strategy which had an increased emphasis on the employment has raised questions about the strength of the Fed’s commitment to price stability. The Fed’s credibility may therefore hinge on its handling of the current inflation surge.
  • Current indicators of expected inflation suggest concern but not panic. The Survey of Professional Forecasters (SPF) conducted Federal Reserve Bank of Philadelphia has shown quiescence – once perceptions of the Fed’s commitment to price stability solidified in the late 1990s, the one-year-ahead SPF forecasts have for the most part remained in the 2-2.5% range, in spite of large fluctuations in actual inflation. The 2021 inflation spike has had only modest effects on the SPF forecasts so far – but this is not cause for complacency. The most recent survey does not incorporate the most recent inflation data, and consequently forecasts are likely to be higher when the next survey is conducted.

inflation
monetary
reserve


central bank
monetary policy

Author: Author

Continue Reading

Economics

Bitcoin Cycles Point Toward…

Bitcoin investors remain under pressure … remember the booms/busts before … despairing sentiment suggests a buying opportunity is near

In January…

Bitcoin investors remain under pressure … remember the booms/busts before … despairing sentiment suggests a buying opportunity is near

In January 2017, you could buy one Bitcoin for $1,000.

By December of that same year, it would cost you about $20,000.

We all know what came next…

In 2018, the price of the grandaddy crypto imploded by 80%.

The crash wiped out many “me too” investors who were late to the party. Classic buying high and selling low.

It was hardly Bitcoin’s first boom/bust.

August 2015 marked the low point of a 75% collapse in Bitcoin, after it had soared over prior years.

Another wipeout for short-term crypto traders.

We could point toward a great many similar Bitcoin booms/busts over the past decade. But one thing hasn’t failed during a single one of them…

Crypto investors who held through the bearishness have been wildly rewarded.

After the 2018 wipeout, Bitcoin went on a 1,000% run.

After the 2015 collapse, it was a 7,000% explosion.

In fact, every single bust over the last decade has turned into a launchpad for a subsequent, new all-time-high.

***So, here we are today, with Bitcoin off 38% from its November high. What are crypto investors to make of it?

Let’s go straight to our crypto specialists, Luke Lango and Charlie Shrem, of Crypto Investor Network:

Behavior in the crypto markets is predictable because human psychology is consistent. Bitcoin goes through “cycles”, and those cycles follow the same four-step process:

  • Bitcoin goes on a tear for a few years, humans suffer FOMO (fear of missing out), and everyone gets bullish.
  • For various reasons, the price of Bitcoin falls precipitously for about a year. Human despair sets in. Everyone gets bearish.
  • Bitcoin bottoms out rather quickly. Humans reach the “acceptance” phase. Bitcoin rebounds.
  • Bitcoin returns to Step 1.
  • Simple enough, right?

    Well, folks, history is repeating itself today. Right now, we are somewhere in Step 2, and are getting awfully close to Step 3.

    It’s easy to feel bearish as a crypto investor right now. And it’s hardly just Bitcoin.

    Many altcoin investors are looking at Bitcoin’s 38% haircut with envy, given far deeper cuts throughout the sector.

    But that makes it all the more important to understand where we are, where we’ve been, and what history suggests is coming.

    Today, let’s look at Luke and Charlie’s latest issue of Crypto Investor Network to see what’s on the way for Bitcoin and the broader crypto ecosystem.

    ***What’s different today and what’s not different

    Let’s begin with what’s different.

    In short, Bitcoin is no longer behaving as an inflation-hedge.

    Luke and Charlie point this out, noting how in 2021, there was a strong correlation between Bitcoin’s price and the 10-year Treasury Yield.

    As yields spiked on inflation fears, Bitcoin climbed. When yields ebbed, Bitcoin fell.

    You can see this in the chart below (Bitcoin is in purple, the 10-year yield is in black).

    From early January 2021 through late December 2021, Bitcoin and the 10-year yield moved in near-lockstep.

    Source: StockCharts.com

    But below, I bring the chart to present day. It’s impossible to miss “what’s different.”

    Chart showing a divergence in bitcoin's price and the 10-year Treasury yield in 2022Source: StockCharts.com

    Here’s Luke and Charlie explaining:

    In the face of Fed rate hikes coming down the pike over the next few months, the market has abandoned all risk appetite.

    Bitcoin has always doubled as a hedge against inflation and a risky asset. But with risk appetites drained, the latter feature is outweighing the former feature.

    That’s near-term bearish.

    However, we also view it as medium-term bullish.

    Why?

    Because risk appetites will rebound once the Fed rips the proverbial band-aid off and inflation pressures ease.

    To that end, we think Bitcoin will get back into a winning groove sooner rather than later.

    Given this correlation breakdown, we can’t say that the pain in Bitcoin is over. In fact, Luke and Charlie believe we’re in the seventh or eighth inning of this selloff, so there could be lower prices ahead.

    But let’s now consider what’s not different, and why that suggests an opportunity.

    ***Bitcoin rises and falls on sentiment, which is currently in the gutter…and that’s good

    How do you value Bitcoin?

    After all, there are no profits or dividend-streams to calculate a “price-to-whatever” ratio.

    In this absence, analysts have gotten creative over the years. They use external variables like market caps, the number of crypto wallets, capital flows, even the level of the stock market.

    But at the end of the day, Bitcoin gets its value from one, primary thing…

    Investor emotion.

    Obviously, with this as the main driver of price, it sets up the potential for exaggerated pendulum swings from bearishness to bullishness and back again – greed-infused booms and despair-laden busts – based nearly entirely on feelings.

    Bitcoin investors would be wise to remember that this cycle repeats (as we pointed out earlier in this Digest). Therefore, bouts of despair should serve as a “on your mark… get set…” call to action for a chance to profit from historical cyclicality.

    So, where are we when it comes to despair and fear?

    Back to Luke and Charlie:

    There is also a specific metric – the Crypto Fear & Greed Index – that leverages market volatility data, trading volume data, social media data, survey data, and search interest data to quantitatively determine how bullish or bearish crypto investors are at any given time. The scale is from 0 (bearish) to 100 (bullish).

    Presently, the index sits down at 21, and it has been clocking in at multi-month lows for weeks now.

    The last time the index was this low?

    In July 2021 – right before Bitcoin proceeded to double in about a month.

    Chart showing the Crypto Fear & Greed Index at a "fear" levelSource: Crypto Fear & Greed Index

    Need we say more?

    The data here speaks for itself.

    Crypto investors are overly bearish on current market conditions, and overly bearish sentiment is a strong contrarian buying indicator.

    ***Taking advantage in top-tier altcoins while pessimism rules the day

    In Crypto Investor Network, Luke and Charlie focus on cutting-edge altcoins that are solving real-world problems, disrupting traditional business models in the process. The amount of change we’re going to see this decade because of these innovations will be mindboggling. The related wealth-creation potential is enormous.

    That’s why Luke and Charlie are adding new, elite altcoins to their portfolio today.

    Over the last two weeks, they’ve recommended three positions in their Crypto Investor Network portfolio.

    Buying when pessimism rules the day isn’t easy. Luke and Charlie acknowledge that, but remind their subscribers of the old Warren Buffett wisdom – “be greedy when others are fearful.”

    Bottom-line, it’s a painful moment for crypto investors. And we should prepare for even lower prices.

    But look at Bitcoin’s history. Time has proven that buying at the bleakest moments has been a wealth-generating decision. Yes, sometimes it takes a while. But so far, it hasn’t failed.

    “So far.”

    Are we to believe that now is different? That we’ve officially peaked and Bitcoin and altcoins are currently in a price-meltdown headed toward complete non-existence?

    If you believe that, then by all means, sell and sell fast.

    But if not, the alternative is that the crypto ecosystem experiences booms and busts, yet is gaining global acceptance. And if that’s true, then history suggests we can use this pain to our advantage.

    So…will you?

    Here are Luke and Charlie to take us out:

    This time is not different.

    It’s the same as 2015. It’s the same as 2018. That means, today, you have a very simple choice before you.

    You can either ignore the lessons of history and run for the hills at the exact wrong time…

    Or you can accept the reality that history repeats itself, buy this dip, stomach a little volatility, and watch your crypto holdings soar in value over the next two-plus years.

    The right choice is obvious.

    Get on the right side of history.

    Get bullish.

    As the old saying goes, millionaires aren’t made in bull markets – they’re made in bear markets.

    Have a good evening,

    Jeff Remsburg

    The post Bitcoin Cycles Point Toward… appeared first on InvestorPlace.




    correlation

    Author: Jeff Remsburg

    Continue Reading

    Trending