A Bumper (and volatile) Week Lies Ahead

Good Morning and welcome to a new week.

It is an action-packed week. A trio of major central banks issue rate decisions, plus we have the monthly non-farm payrolls report, Chinese PMI figures and initial Q4 GDP readings for Germany and the eurozone. As if that was not enough, the heavyweight tech stocks (though less heavyweight since the 2022 declines) of Apple, Amazon and Alphabet, plus Meta, also report earnings figures, along with other major firms in the US. This week will be a vital test for markets that have been broadly risk-on since the beginning of the year.

Stubbornly high inflation is finally easing as supply-chain disruptions fade and interest rates at 15-year highs put the brakes on demand. Now, Federal Reserve officials have voiced unease that prices could reaccelerate because labour markets are so tight. The Fed is expected to raise interest rates on Wednesday by a quarter percentage point to a range between 4.5% and 4.75%, slowing increases for the second consecutive meeting.

In the UK it is yet another week of strikes, beginning on Monday with driving instructors at the Driver and Vehicle Standards Agency. The biggest day of action will come on Wednesday when schoolteachers, train drivers and university lecturers down tools while the TUC trades union body stages a Protect the Right to Strike Day in opposition to a contentious government bill to curb industrial action on essential services.

Thursday will feature earnings from a trio of tech behemoths. Apple’s results are expected to show how well the company's iPhone and other products did during the holiday season, while Amazon will provide insight on the health of online shopping. Google-parent Alphabet will provide color on the digital-advertising market. Companies across multiple industries—such as Exxon, Merck and McDonald’s—will also report their financials this week.

Ryanair reported a record profit for the October-December period, earning €211 million over the quarter. That was above the €200 million expected, and the €106 million record held from the final three-months of 2017. Income was boosted by a 24% increase in traffic, and 48% higher average fares. Meanwhile, a strong dollar and increased Asian demand provides a strong backdrop for the coming period.

Stocks have opened up a little lower across the board with the US futures leading the way with a -1% drop in the Nasdaq.

The FTSE is currently only down -0.2% at 7750. With such a busy week ahead the market will no doubt be volatile. There are many commentators insisting that a drop is inevitable as economic outlook is so bleak, but then there are those who state that the worst is over and it’s time to build on a recovery.

As is so often the case, the truth lies in the middle. There will be a drop as the economy continues to slow on the back of higher costs, but ultimately, the markets will rise as huge amounts of cash that is sitting on the side-lines is slowly injected into risk on assets. Timing the rally, as always, is going to be key.

Economic data this week.

The rate-setting schedules have aligned again for the monetary policy committees of the Federal Reserve, the European Central Bank and the Bank of England.

The ECB is expected to stick with extra-large rate rises while the Fed downshifts, having signalled it would end its pace of 0.75 percentage point increases in December.

The Bank of England is expected to push through a 0.5 percentage point increase, owing to the stubborn persistence of high inflation, strong wage growth and the unexpected resilience of the UK economy.

Companies

We are in the thick of earnings season and this week is peak Big Tech with quarterly figures from Alphabet, Amazon.com, Apple, Meta and Spotify. It has been a sobering time for the sector, not least the admission that they massively over hired during the Zoom years of the pandemic.

Apple will be notable given that it is expected to break a 14-quarter growth streak in the lucrative December period owing to a shortage of high-end iPhones. A November outbreak of Covid-19 in the Zhengzhou factory (known locally as iPhone city) is to blame, creating a handset shortage of somewhere between 5mn and 10mn units.

At about $1,000 a pop, this works out at a $10bn hiccup, and is not good news for Apple given its handset war with Google. Revenue in this quarter in 2021 was a nudge under $124bn; forecasts are slightly lower for 2022 but the hit to net profit could be greater.

Key economic and company reports:

Monday

§     China, stock markets reopen after being closed for the lunar new year holiday

§     Germany, monthly retail sales figures

§     Spain, flash January consumer price index (CPI) inflation rate data

§     Sweden, flash Q4 GDP figures

Tuesday

§     Canada, November GDP figures

§     EU, flash Q4 GDP figures

§     France, flash Q4 GDP figures

§     Germany, flash Q4 GDP figures

§     Japan, December labour force survey (AM local time)

§     UK, Q3 estimate of government debt and the deficit, plus Q4 insolvency data

§     Results: AMD Q4, Canadian Pacific Railway Q4, Caterpillar Q4, Corning Q4, ExxonMobil Q4, Fujitsu Q3, General Motors Q4, McDonald’s Q4, Mondelez Q4, Origin Energy Q2 revenue and production report, Pets at Home Q3, Pfizer Q4, Samsung Electronics Q4, Snap Q4, Spotify Q4, UBS Q4, UniCredit Q4, UPS Q4, Whirlpool Q4

Wednesday

§     Brazil, monetary policy committee inflation rate decision

§     Canada, Brazil, China, eurozone, India, France, Germany, Italy, Japan, Spain, UK, US: S&P Global/SIPS manufacturing purchasing managers’ index (PMI) data

§     EU, December unemployment figures plus HICP inflation rate data

§     UK, Nationwide House Price Index

§     US, Federal Open Market Commission announces latest rate decision

§     Results: Entain Q4 trading update, Glencore FY production report, GSK Q4, Hitachi Q3, Meta Q4, Netgear Q4, Nomura Q3, Novartis Q4, Novo Nordisk Q4, Orsted Q4, Peloton Q2, SK Hynix Q4, Virgin Money Q1 trading update, Vodafone Q3 trading update

Thursday

§     EU, European Central Bank monetary policy committee interest rate decision

§     Germany, trade balance data

§     Spain, monthly unemployment figures

§     UK, Bank of England monetary policy committee interest rate decision

§     US, Q4 unit labour costs and non-farm productivity data

§     Results: ABB Q4, Alphabet Q4, Amazon.com Q4, Anglo American Q4 production report, Apple Q1, Banco Santander Q4, Bristol Myers Squibb Q4, BT Group Q3 trading update, Canada Goose Q3, Chubb Q4, ConocoPhillips Q4, Danske Bank Q4, Dassault Systemes Q4, Deutsche Bank FY, Electrolux FY, Eli Lilly & Co Q4, Estee Lauder Q2, Fast Retailing January sales data, Ferrari Q4, Ford Motor Company Q4, Geox FY, Honeywell Q4, ING Q4, Japan Airlines Q3, Merck & Co Q4 MetLife Q4, NCC H1, OMV Q4, Publicis Groupe FY, Qualcomm Q1, Shell Q4, Sony Q3, Starbucks Q1, World Wrestling Entertainment Q4

Friday

§     Eurozone, France, Germany, Italy, Japan, Spain, UK, US: S&P Global/Cips services PMI data

§     EU, December producer price index (PPI) inflation rate data

§     US, quarterly employment figures

§     Results: Aon Q4, Cigna Q4, Mitsubishi Q3, Skanska FY

Our market bias at the moment:

Many of the portfolios on The Portfolio Platform now have a SHORT SELL BIAS within their strategies.

Some have taken advantage of a rising market this year (particularly in the first couple of weeks of 2023), but over the last week or two, we have definitely spotted a change in sentiment on our platform.

Timing a short sell trade is often hard to time particularly when momentum is strong on the buy side, but if (and hopefully when) they call this potential retracement right- it's a huge advantage of having a portfolio on TPP. If the markets drop, what does your wealth manager do? On TPP- we find that on the 4-5 occasions per annum where we have an overall short sell bias- that it's often the difference between a strategy that performs reasonably- and one that performs excellently.

After a solid end to 2022, and a particularly pleasing Q4- our traders and trading teams will be keen to start 2023 on the front foot with a strong Q1.

Whether global markets bounce back this year, or trade in a range- our traders are tasked with achieving a minimum of 2 x their market benchmark per annum.

Here is to a great year in 2023.


If you currently have an underperforming portfolio elsewhere, or are holding cash whilst waiting for an entry point- contact our team for a FREE market consultation.

Join the investment revolution.

‍