Week ahead: US CPI revisions, RBA to hold. US & AU earnings in focus with layoffs at a year high
Quick macro take, US CPI revision, RBA to hold
The all-important US CPI revisions will be on watch on Feb 9 while US initial jobless claims will be released on Feb 8 (and are expected to rise). While in Australia, the RBA meets on Feb 6 with a hold at 4.35% widely expected. Here is what to expect and consider.
In the US; we know the Fed Fund Futures are now pricing a Fed interest rate cut in May, instead of March after a blowout January jobs report. Plus, the Fed Chair Powell said the central bank would move 'carefully' on lowering rates and that the market may be betting on too many rate cuts. So we are urging a little bit of caution to be taken ahead, for two key reasons.
Firstly, if the Fed keeps rates on hold in March, it would be the first time since mid-2022 that the Fed deviates from the Taylor Rule and it would be a significant structural break in their reaction function.
Secondly, on the corporate side, although US earnings have been better than expected, US options pricing suggested markets and big tech would just glide along. But we saw huge swings in share prices; with Tesla $Tesla (TSLA.US)$ shares falling 13% in the week of their earnings miss, Netflix $Netflix (NFLX.US)$ jumped 18% and Meta $Meta Platforms (META.US)$ rose 21%. So this tells us that market expectations and option pricing was off. So be mindful of volatility, as the VIX index trades in three-month high neighborhood.
Ask yourself as an investor, 'what happens if big tech don't do better than expected' Or what happens if we get hot US data? If may cause tech to pull back. if US tech pulls back, the market goes down. And ripple effects will be felt by ETFs. So ask yourself if you want to take profits and buy into weakness.
US company watch: layoffs are the highest in a year, and buybacks are in focus
This week has another full slate of earnings releases including from McDonald's on Monday and Ford and BP on Tuesday and TotalEnergies on Wednesday. Layoffs and buybacks will be a focus this week. Here is what to consider.
Consider that company layoffs are the highest they've been in a year, which suggests that company outlooks could continue to surprise to the upside. That was also one of the reasons behind Meta declaring its first ever dividend payment, as Meta $Meta Platforms (META.US)$ slashed its headcount, wile its ad business continued to rebound. All in all Meta's better than expected result drove its shares up 20% on the day. With job cuts in mind, keep an eye on Deutsche Bank $Deutsche Bank (DB.US)$, PayPal $PayPal (PYPL.US)$, UPS $United Parcel Service (UPS.US)$, to name a few who recently cut down their workforce.
Secondly, consider share buybacks will be top of the agenda for big oil companies reporting this week, such as BP Plc $BP PLC (BP.US)$ and TotalEnergies SE Watch for updates on BP'ss renewable energy ventures after hedge fund Bluebell urged BP $BP PLC (BP.US)$ to rethink its planned reduction in oil and gas output. For TotalEnergies (TTE FP) it's expected to announce a $2 billion buyback for the first quarter, with total repurchases last year likely to hit its targeted $9 billion.
Aussie company watch: Earnings bar is set low, analysts downgrade banks. Does this mean we are set up for good surprises?
Aussie earnings season kicks off this week with yearly ASX200 $S&P/ASX 200 (.XJO.AU)$ earnings expected to see a turnaround compared to last years. You could argue that the earnings expectation bar has also been set low, so you may be expecting more earnings beats given we have seen earnings downgrades over the last three months. Here is what to watch and consider.
Across all the 11 core sectors we'vve seen the most downgrades to earnings by analysts in the Financials sector on the back of consumption slowing and the expectation that unemployment will rise.
Materials are expected to produce strong earnings with the Iron Ore price up 26% last year, while aluminum and copper prices are up.
Who reports first? Property groups, infrastructure names, utilities and tech companies begin to report this week such as Centuria $Centuria Industrial REIT (CIP.AU)$, Transurban $Transurban Group (TCL.AU)$ , REA Group $REA Group Ltd (REA.AU)$ and Boral $Boral Ltd (BLD.AU)$ with Australian Banks reporting their 1H 2024 results from February 12, with $CommBank (CBA.AU)$ and $Bendigo and Adelaide Bank Ltd (BEN.AU)$ up first.
The other banks will then provide trading updates. Banks net interest margins (how analysts measure their profitability) is widely expected to contract on the back of competition and sluggish lending. But it could possibly be offset by a better than expected deposits.
For more on earnings, use our earnings hub and refer our preview.
So there is plenty to consider.
Happy trading and investing
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Moomoo Official Market Strategist
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