Take Five: US Bank Earnings, BoJ and (Another) Virtual Davos

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With the US earnings season well underway, banking heavyweights such as Goldman Sachs are lining up to release their next report. The Bank of Japan is the first major central bank to meet in 2022 and investors are getting a wealth of data on China.

Davos is going virtual for a second year and how long will the pound hold up against Britain’s growing political uncertainty?

Here’s to your week ahead in the markets from Ira Iosebashvili https://www.Reuters.com/journalists/ira-iosebashvili in New York, Kevin Buckland https://www.Reuters.com/journalists/kevin-buckland in Tokyo , Vidya Ranganathan https://www.Reuters.com/journalists/vidya-ranganathan in Singapore and Karin Strohecker https://www.Reuters.com/journalists/karin-strohecker and Dhara Ranasinghe https://www.Reuters.com /journalists/ dhara-ranasinghe in London.

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1/ BET ON IT

The earnings season in the United States is in full swing and this time it is the financial sector, with its meteoric start to 2022, which is in focus.

The S&P 500 Financials index is up nearly 6% so far this year, while the broader S&P 500 index is down 2% as investors bet on banks benefiting from new loans and yields higher https://www.Reuters.com/business/rise-real-bond-yields-may-slow-not-stop-stock-market-bulls-2022-01-12 should accompany a more aggressive Federal Reserve https: //www.Reuters.com/markets/us/wall-street-banks-see-four-us-hikes-2022-inflation-is-wild-card-2022-01-10.

Goldman Sachs and BNY Mellon report on Tuesday; Bank of America, Wednesday. Reports from major non-financial companies include Netflix on January 20.

Bank executives should be bullish https://www.Reuters.com/markets/us/big-us-banks-expected-post-uptick-core-q4-revenues-economic-rebound-2022-01-10 on the outlook, it remains to be seen whether this will be enough to sustain demand for bank stocks. As some note, bank stocks often do better before rate hikes than during rate hikes.

2/ GOOD NEWS FIRST?

The good news for Bank of Japan officials meeting on January 17 and 18: inflation is rising, the economy is recovering.

Consumer prices rose at their fastest pace in nearly two years in November. Even Japanese affordable clothing giant Uniqlo says it has no choice but to raise prices – a change in a country where deflation is the norm and businesses face any rise in costs by tightening their belts https://www.Reuters.com/article/japan-companies-stimulus-idUSL4N2TR0EW rather than passing them on.

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The bad news? Inflation is rising for the wrong reasons.

Instead of being the result of nearly a decade of overpowering monetary stimulus, the price hike is due to soaring energy prices and a weaker yen.

The challenge https://www.Reuters.com/world/asia-pacific/bojs-kuroda-says-inflation-likely-gradually-accelerate-2022-01-12 prevents the rising cost of living from hurting low spending household and recovery. So the BOJ may be debating when it can start telegraphing a -01-13 rate hike but will also commit to continuing the ultra-easy policy this year.

3/ BALANCE

Monday’s data confirmed China’s economy rebounded in 2021, growing 8.1%, from its pandemic-induced slump, but the pace slowed than-expected-2022-01-17 in Q4.

China’s central bank unexpectedly cut https://www.Reuters.com/markets/rates-bonds/china-cuts-rates-policy-loans-analysts-point-more-easing-ahead-2022-01-17 the borrowing costs of its medium-term loans for the first time since April 2020.

Shutdown efforts to ease monetary conditions are a key focus for investors, along with whether policymakers can balance cleaning up a bloated housing sector while containing stress https://www.Reuters .com/markets/deals/china-plans-relax-three-red-lines-encourages-state-led-property-ma-redd-2022-01-07 on home buyers and suppliers.

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With the Chinese New Year holiday in early February and the Beijing Winter Olympics shortly after, the central bank will be keen to keep banks and markets afloat with liquidity.

4/ VIRTUAL IN DAVOS

For a second year, top world leaders, policy makers and business leaders will head to the World Economic Forum (WEF) in the Swiss ski resort of Davos from January 17-21 to put away their snow boots https ://www.Reuters.com/business/world-economic-forum-defers-davos-meeting-amid-pandemic-2021-12-20 and hop on video calls https://www.weforum.org/events/ the-davos-agenda-2022 to tackle the world’s major challenges.

The mood is gloomy: only one out of 10 WEF members questioned https://www.Reuters.com/markets/europe/gloomy-outlook-global-recovery-world-economic-forum-survey-finds-2022-01- 11 that the global recovery gains momentum over the next three years, with only one in six people optimistic about the global outlook.

Climate change is seen as the number one danger, while erosion of social cohesion, livelihood crises and deteriorating mental health are seen as the risks that have increased the most due to the coronavirus pandemic. COVID-19.

Japan’s Fumio Kishida, India’s Narendra Modi, Ursula von der Leyen of the European Commission, US Treasury Secretary Janet Yellen and Christine Lagarde of the ECB are all expected to speak. The full in-person meeting has been rescheduled for early summer.

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5/ SUPER HIGH

Sterling is sailing high on signs that the Omicron COVID surge and expectations that UK interest rates will likely rise again in February. It is at two-month highs against the dollar and one of the best performing major currencies heading into 2022.

If the upcoming data boosts rate hike bets, currency bulls will have another reason to push the pound higher. November jobs numbers are released on Tuesday, followed by December inflation on Wednesday and retail sales numbers on Thursday.

Meanwhile, the pound appears unfazed by the growing political uncertainty. Boris Johnson’s position as Prime Minister looks vulnerable after revelations https://www.Reuters.com/world/uk/party-over-uk-pm-johnson-faces-crunch-day-parliament-2022-01 -12 he attended a Downing Street Party during a 2020 lockdown. Didn’t someone once say that a week is a long time in politics? The same could hold true for trading the pound.

(Compiled by Dhara Ranasinghe; Editing by Tomasz Janowski)