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Fin-X Weekly Update 20th January 2025

Brett Careedy

Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 19th January 2024


Stock indices made gains last week after better-than-expected US financials earnings and optimistic survey data. Relatively good inflation data and a prospective ceasefire in Gaza also helped bond yields retrace, further supporting equities.


The US market will be closed tonight, but the presidential inauguration ceremony will take place in Washington, DC. Several executive orders are likely to follow this week, with investors most interested in announcements related to tariffs and immigration.


The Bank of Japan is expected to raise rates on Friday, barring any trade policy surprises. Chinese and Norwegian rates are expected to remain on hold. The latest flash PMI surveys are also due out, and reporting season continues.


Stock indices rebounded last week on the back of a good start to the US quarterly earnings season, lower bond yields and an optimistic economic outlook.


Source: Bloomberg


All 17 of the S&P500 financials that reported earnings last week were ahead of analyst estimates. The aggregate surprise was just over +14%, equivalent to a +25% rise over the last 12 months.


In the Australian market, Bain Capital matched the higher CC Capital bid of $4.30 before CC Capital upped its offer to $4.60 on Friday. The shares traded +7.5% higher over the week.


The US dollar weakened, and bond yields retraced some of the recent increases on pleasing inflation data. American headline CPI inflation (+2.9% yoy) was in line with consensus forecasts. But core CPI ex-food and energy (+3.2% yoy) and producer price inflation (+3.3% yoy) were slightly softer than anticipated. With more timely real estate data suggesting that shelter inflation will likely continue to decelerate, investors were hopeful that the recent rise in inflation would prove temporary. There was also a helpful surprise out of the UK, as CPI of +2.5% yoy was slightly below estimates.


Oil prices rose over the week after the US agreed with partners to impose stricter sanctions on Russia. However, news of a ceasefire agreement between Israel and Hamas and comments from the incoming US administration took some of the steam out of the rally despite signs of improvement in the growth outlook.


The NFIB small business and the Empire (New York) manufacturing surveys both revealed a strong pickup in optimism that had yet to translate into new sales. However, the Philadelphia Fed’s Manufacturing Outlook was propelled higher by a spike in firms reporting new orders and shipments. This likely provides some upside risk to upcoming ISM manufacturing surveys, although it is unclear whether the rise will be sustained.


The Federal Reserve’s national Beige Book survey read: ”Consumer spending moved up moderately, with most Districts reporting strong holiday sales that exceeded expectations. […] Manufacturing decreased slightly on net, and a number of Districts said manufacturers were stockpiling inventories in anticipation of higher tariffs […]  More contacts were optimistic about the outlook for 2025 than were pessimistic about it, though contacts in several Districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy”. PBS News also interviewed several manufacturers who reported bringing orders forward ahead of anticipated tariffs.


The President-elect’s pick for Treasury Secretary, Scott Bessent, appeared at his confirmation hearing in Congress last week, outlining the new administration’s economic policy priorities. In his prepared remarks, he said:


Today, Americans face significant challenges in an economy that has not created enough opportunities for working men and women.  We have an affordability crisis, a housing shortage and for the first time in my lifetime, parents feel as though the American dream is slipping away from their children.


The federal government has a significant spending problem, driving deficits that have averaged an historically high 7 percent of GDP annually during the past four years. We must work to get our fiscal house in order and adjust federal domestic discretionary spending that has grown by an astonishing 40 percent over the past four years. 


Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation.


As we begin 2025, Americans are barrelling towards an economic crisis at year's end. If Congress fails to act, Americans will face the largest tax increase in history, a crushing $4 trillion tax hike.  We must make permanent the 2017 Tax Cuts and Jobs Act and implement new pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors.  I have already spoken with several members of this Committee, as well as leaders in the House about the best approach to achieving these important goals together.


As President Trump has said, we will unleash the American economy by implementing pro-growth regulatory policies, reducing taxes and unleashing American energy production“.


Responding to questions on trade policy, he expressed general support for new tariffs without clarifying which countries or goods and services would be affected.


New tariffs would be an unwelcome development for many manufacturing countries, including Germany, which reported negative real GDP growth last week for the second year in a row.


China is also highly likely to see higher tariffs on exports to the United States. On Friday, the monthly data release showed better-than-expected annual growth in industrial production (+6.2%) and retail sales (+3.7%), contributing to an annual GDP increase of +5.4%, +0.4% above the target and consensus estimates. However, the surveyed jobless rate also ticked up from 5.0% to 5.1%, and year-to-date residential property sales are -17.6% below the same period last year.


Earlier in the week, Reuters reported that authorities had taken control of the state-backed property developer China Vanke. The Economic Observer also reported that CEO Zhu Jiusheng was detained on Wednesday, adding that the company could be subject to a government takeover and reorganisation, according to unidentified sources. The state-backed newspaper provided no details on how any revamp might look or how the 331.3 billion yuan (US$45.21 billion) of outstanding debt might be impacted. Chinese interest rates are expected to be kept on hold later today.


Australian unemployment rose from 3.9% in November to 4.0%, as widely anticipated. However, the increase was attributed to a +0.1% rise in participation as +56.3k new jobs were added to the economy. However, the mix was heavily skewed to part-time work (+80.0k) as full-time numbers dropped (-23.7k).


The market is continuing to price a -0.25% cut from the RBA in February, although the odds have receded slightly to a 68% chance.


In contrast, the Bank of Japan is expected to raise rates by a quarter-point to 0.5% on Friday. The market is only attributing an 84% chance of a rate rise, as Governor Ueda said that any unexpected changes to American trade policy could be taken into account.


Donald Trump is scheduled to be sworn in for a second term tonight. Several executive orders are expected to be issued in the first few days of the new administration this week, with market prices likely to respond to any tariff or immigration changes. The US market will be closed tonight for Martin Luther King Day.


Also this week, the World Economic Forum opens in Davos, the latest flash PMIs will be published, and 41 industrials in the S&P500 will report earnings, including Netflix, Johnson & Johnson, and Crown Castle.


M&A


In company news, there is talk that RIO Tinto and Glencore discussed a potential merger. If this were to occur it would be the mining industry’s largest-ever deal catapulting the combined entity past BHP to be the worlds largest by market capitalisation. The discussions are currently inactive but the industry has been surprised by the companies’ willingness to engage in extended discussions according to Bloomberg.


Source: Bloomberg

Source: Bloomberg, BLS, Federal Reserve Bank of Philadelphia, NFIB, ISM, ABS, 19th January 2024

 

Significant Upcoming Data:

US Reporting Calendar


Tuesday                       Netflix (NFLX), Prologis (PLD), Interactive Brokers (IBKR), 3M (MMM)

Wednesday                  Proctor & Gamble (PG), Johnson & Johnson (JNJ), Abbott Lab (ABT), GE Vernova (GEV), Travelers (TRV), United Airlines (UAL)

Thursday                     Intuitive Surgical (ISRG), Union Pacific (UNP), Elevance Health (ELV), American Airlines (AAL)

Friday                          American Express (AXP), Verizon Communications (VZ), NextEra (NEE)


Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 19th January 2024


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