Daily Agenda: The Week Ahead, January 12 – 16, 2015

Macro and micro factors compete for investor sentiment the coming week as fourth-quarter 2014 earnings season gets underway.

CSX Corp. Trains Ahead Of Oct. 14 Earnings Announcement

A northbound CSX Corp. freight train carrying automobiles bound for Boston, Massachusetts, travels through Louisville, Kentucky, U.S., on Monday, Oct. 6, 2014. CSX Corp. is expected to release third-quarter earnings results on Oct. 14 following the close of U.S. financial markets. Photographer: Luke Sharrett/Bloomberg

Luke Sharrett/Bloomberg

Traditionally, the start of earnings season is a time for macroeconomic factors to take a back seat to corporate strategy. As fourth-quarter 2014 results announcements begin this week, however, it is primarily macro points that are weighing on stock market sentiment. The Chicago Board Options Exchange volatility index, also known as the VIX, has been elevated above recent historical averages, but not to the extent to indicate panic. Collapsing oil prices and a strengthening dollar are negatively impacting commodity and export-centric companies and consequently announcements by stalwarts such as Alcoa and Kinder Morgan in the coming days will play a big part in managing expectations for those sectors as the season moves ahead. Despite these factors, modestly positive economic fundamentals in the U.S. suggest that the tone for the quarter will be upbeat. Many strategists speculate that U.S. equities can head higher still despite lofty valuations. In a note to clients Friday, David Rosenberg, chief economist at Gluskin Sheff in Toronto, commented that in a mature phase of a bull market, peak multiples are still sometime two to three points higher than they are now. “So yes, Virginia, there is still room for an expensive market to become more richly prices in the coming year,” he wrote, adding, “that alone would tack 10 percent to S&P 500 valuation without any earnings support at all.”

Monday, January 12: On a quiet day for macroeconomic data releases, investors will parse November home loan data in Australia for signals as to the next course of Reserve Bank of Australia policy. RBA governor Glenn Stevens has repeatedly raised concerns over the rapid pace of price appreciation in some markets, as benchmark rates remain at record lows. In the U.S., quarterly earnings reporting season gets fully underway with the release of fourth-quarter 2014 results by Alcoa, the world’s third-largest aluminum producer, after market close. The earnings report will serve double-duty as a measure not only of Alcoa’s performance during the previous quarter but also the strength of the industrial sectors.

Tuesday, January 13: On the day after a market holiday in Japan, investors return to work in time for December bank lending data and November trade figures. Both indicators will be examined for any effects from Bank of Japan easing measures. In China, trade data and new loan figures will also be released. Consensus forecasts call for an even sharper contraction in imports for the month on weaker commodity prices and sluggish demand. The pace of new lending is expected to be flat as the People’s Bank of China continues to reign in risky lending in some segments. A week after the Bank of England decided to keep benchmark rates at historic lows, December consumer price index (CPI) and producer price index (PPI) are expected to show no signals of inflationary pressure in the near term, as cheap oil and sluggish external demand keep prices in check. Management commentary in earnings releases from Houston–headquartered energy company Kinder Morgan and Jacksonville, Florida–based transport firm CSX Corp. will likely focus heavily on the fallout from oil price movements as concerns among equity investors spread from producers to ancillary oil-related sectors such as transport.

Wednesday, January 14: In Japan machine tool orders numbers for December will be released, a data set that is often seen as a leading indicator for overall industrial activity. Consumer inflation data for December is expected to register another month-over-month contraction in France, as all eyes remain focused on the next announcement from the European Central Bank, specifically the possibility of intervention to combat deflation. In the U.S. December retail sales data will be the big macro story of the day. With forecasts for a moderation in ex-automotive receipts despite the 2014 holiday season, these numbers may lend insight into sentiment in the consumer discretionary equity sector. Two other big announcements for the day will be the Energy Information Administration crude oil inventory report and the Federal Reserve Beige Book release. On deck to report fourth-quarter earnings are financial sector firms J.P. Morgan Chase and Wells Fargo & Co.

Thursday, January 15: November machinery orders and December corporate goods price index data will be released in Japan on Thursday, providing more insight into the ongoing debate over the true impact of Abenomics. December employment numbers in Australia are expected to show a modest improvement in head count with the headline rate remaining unchanged. To date, the RBA has kept an emphasis on the employment situation tipping the scales against tightening despite concerns over inflation in some asset classes. First-release 2014 annual gross domestic product data in Germany will be a focus for European markets on Thursday, as will wholesale prices for December. Recent disappointing industrial data has raised fears that the European Union’s largest economy slowed down in the fourth quarter. Separately euro zone aggregate trade data for November is expected to show softness in imports on low oil costs and sluggish demand. Initial claims data in the U.S. will be released at 8:30 am as will December PPI figures. The pace of earnings announcements from large-cap equities picks up, with scheduled releases from among others, Citigroup, Intel and Schlumberger.

Friday, January 16: On Friday the release of German and aggregate euro-zone CPI data stands to affect debt and equity market sentiment, as the prospect of ECB easing measures in response to deflation remains a primary focus. December CPI will also be announced in the U.S., with consensus forecasts for the pace of growth in core prices to remain unchanged for the month while the low cost of oil is expected to press the headline index lower on a year-over-year basis. Initial January University of Michigan consumer sentiment data and November Treasury International Capital (TIC) flows from the Treasury Department will round the day out of economic data releases. Financial sector earnings releases in the U.S. include both Goldman Sachs Group and PNC Financial reporting before equity markets open.