More dates for investors and markets to chew over this week with new earnings reports in the US, some key quarterly production reports here, Australian jobs, US retail sales and Chinese GDP and other data.
Ahead of the start of the Lunar New Year (and Spring festival) next weekend, China revealed a horrific death toll estimate from the current Covid wave – just under 60,000 in the last month and more than 65,000 since the pandemic started in early 2020.
The figure came at a briefing in Beijing on Saturday by government health commission officials who confirmed the data had been given to the World Health Organisation.
China’s reluctance to hand over that data and information on the strains of Covid being detected and other technical info, helped Australia, the US and other countries justify their calls for Chinese tourists and others to have a negative PCR test before they arrive in the various countries. Will this handover and assurances of more to come see this relaxed or even reversed?
That’s for this week but the easing inflation rates in the euro zone the week and in the December consumer price index in the United States came as a pleasant surprise for markets, keeping traders’ appetite for risk alive and driving prices higher, aided by the China re-opening story.
Traders are now looking for a slowdown in the pace of central bank rate hikes and a soft landing for economies rather than a pancake into a recession.
The weaker inflation readings have also seen a sharp jump in demand for bonds as many investors who sold off last year and called the end of the long boom in bonds, rediscovered the joys of fixed interest securities.
There are very short memories in many financial markets, but few are shorter than in bonds. But that could soon be upset by the return of the occasional US debt limit political crisis from later this week.
In the US this week’s earnings reports include two banks – Goldman Sachs and Morgan Stanley on Tuesday – with the vital update from Netflix two days later as these figures reassume their traditional importance for markets.
But the old perennial sore point in US politics and business is the question of the raising of America’s statutory debt limit, currently around $US31.4 trillion.
Treasury Secretary Janet Yellen notified Congress on Friday that the country will reach that limit on Thursday
After that, the Treasury Department will begin “taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” Ms Yellen wrote in a letter to new Republican House Speaker Kevin McCarthy.
The Treasury “is not currently able” to estimate how long those emergency actions will allow the US to pay for government obligations, she wrote.
But, “It is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen added.
She warned McCarthy that it is “critical that Congress act in a timely manner to increase or suspend the debt limit.”
“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.
Yellen’s letter effectively starts a clock counting down how long the federal government can continue to make interest payments on its debt.
This issue has the capacity to erode confidence in the US economy and its management by the Fed and the Biden Administration. If the Republicans go too hard, it could trigger a major sell-off in bonds and in equities in the next six months.
The growing political argument Other key data to be released this week include the producer price index, retail sales, industrial production, and business inventories
There’s also the NY Empire State Manufacturing Survey and the Philadelphia Fed Survey for January which will provide critical insight into the way key areas of US manufacturing have started the new year.
There’s also the last wave of US housing data for December with housing starts and existing-home sales remaining weak.
Economists from Moody’s also said they will be looking at the weekly initial jobless claims as the timeliest indicator of changes in the labour market.
Claims fell in last week’s figures by 1,000 to 206,000 – the lowest point in several months “and remain well below our estimate of the break-even level, or that consistent with no monthly job growth.”
“While weaker hiring will certainly play a role in the future path of the labor market, it is hard to imagine a significant deterioration occurring without a meaningful uptick in layoffs and unemployment insurance claims.
The latest unemployment benefits figures are out Thursday night.
The US earnings season steps up this week with the two banks and Netflix to be joined by the likes of Procter and Gamble, United Airlines, Costco, Alcoa and Schlumberger.
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This coming week sees the final data dump from China for 2022, capped by the GDP numbers.
Moody’s economists expect GDP to decline 1.1% year over year in the December quarter.
“COVID-19 restrictions have hampered growth throughout the year with consumers unable to spend as lavishly as they did during lockdowns and manufacturing plants operating sub-optimally.
“Some support was seen in the latter part of the year with large infrastructure spending announced and easing in restrictions. However, this is unlikely to have reversed much of the decline,” Moody’s wrote last week.
December and 2022 data on industrial production, unemployment, retail sales and investment will also be released – they will not be good and will confirm the economy is under pressure.
House price data is out today, while the investment data for the property sector will be released tomorrow – that remains the key sector that has to be fixed up before the “China re-opening story” has any credibility.
Elsewhere in Asia, the Bank of Japan is forecast to leave monetary policy unchanged, even though inflation remains high by Japanese standards at 4%.
December’s surprise tweak by the central bank “proves that Governor Kuroda can be counted on to pull a rabbit out of his hat, so further adjustments can’t be ruled out,” Moody’s economists wrote
“But the economic context is still weak with little demand-driven price pressure and output below pre-pandemic levels. A positive outcome in spring wage negotiations could crack open the door for monetary policy change, but sustained demand pressure requires more than a single year of robust wage gains,” Moody’s economics team noted at the weekend.
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In Australia we get the jobs data for December on Thursday, as well as and the early figures on the labour market for calendar 2022.
This week also sees the latest National Australia Bank business survey for December released and then the Westpac/Melbourne Institute consumer sentiment survey.
There are some important quarterly reports starting with Rio Tinto’s full year and December quarter figures today and BHP’s half year and December quarter data on Thursday.
Woodside and Santos are expected to release full year and December quarter data on Friday.
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In Europe the final December inflation data is due to be released.
“We expect that the final releases in the euro zone will each confirm preliminary estimates published previously,” Moody’s wrote at the weekend.
“As such, the euro zone’s inflation rate will likely decelerate to 9.2% year on year in December from 10.1% in November. Declines in energy prices will be the major cause, while core and food inflation will inch higher.
“We believe inflation has passed its peak, but it will take a long time still before inflation falls back to target.
“Inflation in the U.K. meanwhile likely eased to 10.2% year over year in December from 10.7% in November, Moody’s forecast.
“Energy inflation will also likely decline, thanks to lower gasoline and oil prices, but electricity and gas prices will be fixed, and will not benefit from lower wholesale prices until the price cap is recalculated in 2023.
“The U.K.’s labour market likely was stable in the three months to November, with an unemployment rate unchanged from the October quarter at 3.7%.
“That said, we see recession forces pushing unemployment higher in the U.K. Likewise, we forecast a 0.2% month-on-month increase in retail sales after a 0.4% decline in sales in November. Despite the rebound the retail trend looking ahead is also negative, and we expect to see private consumption contract in both the fourth and first quarters.
