Market braces for busy week of earnings and central bank decisions

 

Stocks traded lower Monday, pausing a January rally as investors braced for the busiest week of earnings season.

The upcoming week is also full of potential market movers including policy decisions from central banks as well as inflation and employment data from the US, Eurozone, and China.

Overnight, the Dow Jones Industrial Average declined 0.8 per cent. The S&P 500 fell 1.3 per cent, while the Nasdaq Composite dropped by almost 2 per cent.

Despite the declines overnight, the S&P 500 is headed for its best January since 2019 when it gained nearly 8 per cent. The broader market index is up 4.6 per cent for 2023 following a 19 per cent loss last year.

As a result of this year's strong performance, short-sellers have suffered. Short-sellers made a killing in 2022 with $300 billion in mark-to-market profits due to inflation and high-interest rates affecting major companies. However, this year the market has recovered, causing short-sellers to incur $81 billion in mark-to-market losses. This is a sign of a recovering market, but growth companies have returned to trading at a more palatable multiple for value investors, causing short-sellers to close out bear positions.

However, there are several tests this week for the 2023 rally. About 20 per cent of the S&P 500 will report earnings this week, including McDonald’s and General Motors on Tuesday followed by tech giants Apple, Meta Platforms, Amazon and Alphabet later in the week.

The Federal Open Market Committee meets on Tuesday and Wednesday, when the Fed is expected to hike rates by one-quarter of a percentage point. Investors will be looking for clues about how much higher the central bank will take rates in the fight against inflation. Traders have pushed stocks higher this year in part because of softer inflation reports, which they suspect could cause the Fed to soon pause its hiking campaign.

“You’re seeing this push and pull in stock prices between whether the Fed will keep interest rates where they are throughout the year, or whether they’ll pivot to cutting interest rates. “ said Tom Hainlin, senior investment strategist at U.S. Bank.

In electric vehicle related news, Ford shares declined more than 2 per cent after the automaker said it’s cutting prices and ramping up production on its electric Mustang Mach-E crossover, following a similar announcement from Tesla.

In addition, in China, big lithium miners are expected to report record earnings after surging demand for the electric vehicle battery material sent prices surging to an all-time high last year. The bumper profits have come as Chinese prices for lithium carbonate peaked in November after jumping around 15 times from the lows in 2020.

The S&P 500 sectors overnight performed mostly lower. Information technology and energy were among the biggest laggards.

The EU has proposed new energy export sanctions on Russia. China and India may not be here to help. The EU will ban imports of refined Russian fuels on 5th Feb to add to its embargo on seaborne Russian crude oil that began in Dec. but China and India may not buy the refined fuels once sold to EU.

Futures

The SPI futures are pointing to a 0.1 per cent fall.

Currency

One Australian dollar at 8:10 AM has weakened compared to the US dollar yesterday buying 70.59 US cents (Mon: 71.00 US cents).

Commodities

Iron ore futures are pointing to a 0.3 per cent fall.

Gold lost 0.4 per cent. Silver added 0.2 per cent. Copper dropped 0.9 per cent and oil fell 2.4 per cent.

Figures around the globe

Across the Atlantic, European markets closed mixed. London’s FTSE added 0.3 per cent, Frankfurt lost 0.2 per cent while Paris closed 0.2 per cent lower.

In Asian markets, Tokyo’s Nikkei added 0.2 per cent, Hong Kong’s Hang Seng dropped 2.7 per cent while China’s Shanghai Composite closed 0.1 per cent higher.

Yesterday, the Australian sharemarket closed 0.2 per cent lower to close at 7,482.

Ex-dividends

CVC (ASX:CVC) is paying 4 cents fully franked
Kkr Credit Income Fund (ASX:KKC) is paying 1.0938 cents unfranked
Metrics Income Opportunities Trust (ASX:MOT) is paying 1.62 cents unfranked
Metrics Master Income Trust (ASX:MXT) is paying 1.44 cents unfranked

Dividends payable

Centuria Industrial REIT (ASX:CIP)
Centuria Office REIT (ASX:COF)
Kelly Partners Group Holdings (ASX:KPG)
Region Group (ASX:RGN)
Rural Funds Group (ASX:RFF)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

Disclaimer

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