- China have dictated price action in 2016 so far, and many are looking to Asia to see if the recent slowdown concerns are set to continue
- Highlights in the US include the kick off of earning season, while the UK sees the latest BoE rate decision
After a rocky start to 2016, much of the focus this week may not be on economic releases but instead on China to see what exactly, if anything, the PBoC will do to stop the rot. The back end of last week saw the removal of circuit breakers in China and Chinese equities finished higher on Friday, while the PBoC refrained from weakening the CNY further, however this was not enough to boost sentiment in western markets. As such, many consider this week to be an important barometer as to whether global markets are strong enough to bounce back from the rocky start, or whether 2016 may prove to be somewhat of a tumultuous year.
As well as newsflow from China, another indicator to economic strength will be earning season, which unofficially kicks off on Monday with Alcoa, while Intel, JP Morgan, Blackrock and Citi all report later in the week. Of note, Analysts at Goldman have stated that they are in favour of call-buying for earnings following the pullback we have seen in the first week of the year as it has increased relief rally potential, with the catalyst being the possibility of revisions (upward/downward) to earnings. Goldman include the likes of Apple, LinkedIn, Mylan and Qualcomm in their predictions for potential upside to EPS, while suggest that Boeing and Sysco may disappoint.
There are also a number of datapoints out of the US which may garner some attention, including the likes of retail sales, where as usual the control sales will be in particular focus, as well as industrial production and JOLTS job openings, which is a number known to be looked at by the Fed.
In terms of central bank news, while we expect the usual slew of speakers, this week also sees the latest BoE rate decision and the minutes from last month’s ECB meeting. The ECB minutes may not garner too much attention due to their out of date nature, as well as the fact that ECB’s Draghi holds a press conference after each meeting, so most points should have been covered already. The BoE meeting may be of more interest, however with CPI remaining at 0.1% Y/Y for November, it is unlikely that many of the MPC members will be tempted to join McCaffety in calling for a rate hike. Another focus point in the release, will be to see if the minutes reiterate the rhetoric from last month where the BoE stated that there is no mechanical link between UK policy and those of other central banks, and their stance would be determined by domestic inflation outlook. Participants will also be looking out for any clues as to the impact of the latest slump in commodity prices on the central bank’s rhetoric.