Take Five: US Bank Earnings, BoJ and (Another) Virtual Davos

Raindrops hang from a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

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Jan 14 (Reuters) – With the U.S. earnings season well underway, banking heavyweights such as Goldman Sachs are lining up to release their next report. The Bank of Japan is the first major central bank to meet in 2022 and investors are getting a wealth of data on China.

Davos is going virtual for a second year and how long will the pound hold up against Britain’s growing political uncertainty?

Here’s to your week ahead in the markets of Ira Iosebashvili in New York, Kevin Buckland in Tokyo, Vidya Ranganathan in Singapore, and Karin Strohecker and Dhara Ranasinghe in London.

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1/ BET ON IT

The earnings season in the United States is in full swing and this time it is the financial sector, with its meteoric start to 2022, which is in focus.

The S&P 500 Financials Index (.SPSY) is up nearly 6% year-to-date, while the broader S&P 500 Index is down 2% (.SPX), with investors betting on banks benefiting from new loans and on the higher yields that should accompany a more aggressive Federal Reserve.

Goldman Sachs and BNY Mellon report on Tuesday; Bank of America, Wednesday. Reports from major non-financial companies include Netflix on January 20.

Bank executives should be optimistic about the outlook, it remains to be seen whether this will be enough to support demand for bank stocks. As some note, bank stocks often do better before rate hikes than during rate hikes.

FEED

2/ GOOD NEWS FIRST?

The good news for Bank of Japan officials meeting on January 17 and 18: inflation is rising, the economy is recovering.

Consumer prices rose at their fastest pace in nearly two years in November. Even Japanese affordable clothing giant Uniqlo (9983.T) says it has no choice but to raise prices – a change in a country where deflation is the norm and companies are making deal with any cost increases by tightening the belt rather than passing them on.

The bad news? Inflation is rising for the wrong reasons.

Instead of being the result of nearly a decade of overpowering monetary stimulus, the price hike is due to soaring energy prices and a weaker yen.

The challenge is to prevent the rising cost of living from undermining weak household spending and a fragile recovery. So the BOJ may be debating when it can start telegraphing a rate hike, but will also commit to continuing its ultra-easy policy this year.

The BOJ at the back of the global tightening race

3/ BALANCE

Monday’s data is expected to confirm that China’s economy stabilized in the fourth quarter, rebounding from power outages and coronavirus setbacks and pushing 2021 growth to 8%.

Data on Wednesday showed new bank lending fell more than expected in December, although annual lending set a record as the central bank slowly steps up policy support to cushion the slowing economy.

Shutdown efforts to ease monetary conditions are a key focus for investors, alongside the question of whether policymakers can balance cleaning up a bloated real estate sector while containing stress on buyers and suppliers of houses.

With the Chinese New Year holiday in early February and the Beijing Winter Olympics shortly after, the central bank will be inclined to keep banks and markets running out of money.

Chinese growth is slowing

4/ VIRTUAL IN DAVOS

For a second year, world leaders, policy makers and business leaders heading to the World Economic Forum (WEF) in the Swiss ski resort of Davos from January 17-21 will put away snow boots and jump on video calls to meet the great challenges of the world.

The mood is bleak: only one in 10 WEF members surveyed expect the global recovery to gain momentum over the next three years, and only one in six are optimistic about the global outlook.

Climate change is seen as the number one danger, while erosion of social cohesion, livelihood crises and deteriorating mental health are seen as the risks that have increased the most due to the coronavirus pandemic. COVID-19.

Japan’s Fumio Kishida, India’s Narendra Modi, Ursula von der Leyen of the European Commission, US Treasury Secretary Janet Yellen and Christine Lagarde of the ECB are all expected to speak. The full in-person meeting has been rescheduled for early summer.

The main global risks of the WEF

5/ SUPER HIGH

The pound is sailing high on signs that the Omicron COVID surge is easing and expectations that UK interest rates are likely to rise again in February. It is at two-month highs against the dollar and one of the best performing major currencies heading into 2022.

If the upcoming data boosts rate hike bets, currency bulls will have another reason to push the pound higher. November jobs numbers are released on Tuesday, followed by December inflation on Wednesday and retail sales numbers on Thursday.

Meanwhile, the pound appears unfazed by the growing political uncertainty. Boris Johnson’s position as Prime Minister looks vulnerable after revelations he attended a Downing Street party during a 2020 lockdown. Didn’t someone say a week is it long in politics? The same could hold true for trading the pound.

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Sterling off to a strong start in 2022

Compiled by Dhara Ranasinghe; Editing by Tomasz Janowski

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