Market News – Monday 17th January 2022 – Markets wait for central bank meetings

Dear Reader, There’s a US holiday today, in observance of Martin Luther King Day.   So, both stock and bond markets are closed Stateside.   As usual, trading may be more subdued, especially for the afternoon session here in Europe, with the American’s away.   Forex markets will not be that much affected.   However, closer to home there is a bit of action, with the announcement that Unilever has made three bids to buy GSK’s consumer goods division that it is planning to spin off into a separate listed company.   GSK has said that Unilever’s most recent bid on 20th December of $50bn undervalued the business – with analysts suggesting that GSK would be looking for upwards of $60bn.   Stock markets on Sunday night were mixed following the release of China’s GDP, which came in at 4%, compared to 6.5% this time last year.   The number was better than the forecast 3.3% and was accompanied with a cut in the lending rate by the People’s Bank of China – the first since April 2020.   US markets struggled last week with the S&P500 just slipping into negative territory for the week, the second negative week so far this year.   In contrast, UK markets, frequently regarded as the least favourite market following the Brexit uncertainty, posted the second positive week this year with several positive results from retailers.   The mood was further enhanced by a better-than-expected November GDP reading of +0.9%, taking UK economic growth to 0.7% higher than what it was just before the Pandemic hit in March 2020.   The FTSE100 has outperformed most of its peers in both Europe and North America as optimism builds about the UK’s prospects.   Constituents of the FTSE100 and FTSE250 remain significantly undervalued when compared with European and US peers.   Several major US investors are targeting UK companies that are undervalued with good growth prospects.   Review of last week’s key action   FTSE +58 +0.77% DOW -319 -0.88% S&P -14% -0.3% NASDQ -42 -0.28% DAX -64 -0.4% NIKKEI -370 -1.3% Hang Seng +889 +3.79%   Financial stocks enjoyed a good 2021 as expectations increased of rate rises in 2022, thus improving the profit margins on general banking activities.   But last Friday, JP Morgan Chase soured the mood with an update saying it would miss its profits target this year.   JPM stock fell 6.15% on Friday.   Q4 earnings season start to gather pace this week with Goldman Sachs, Alcoa, Bank of America and Morgan Stanley to name but a few.   So, focus remains on inflation and interest rates. As always, the Fed is at the centre of attention.   Last week, Jay Powell during his re-appointment hearings in Congress, said that the bank would act to prevent inflation becoming entrenched.   This helped inflation-sensitive bonds but on Thursday the markets confronted the reality that rates would rise in March, with the futures markets implying a near 95% probability of a rate rise. In addition, Powell also did not counter market speculation that the Fed would start shrinking its monstrous balance sheet later this year.   This means selling some of those securities bought during the pandemic QE program, which will also help control inflation.   Aside from the Fed, data last week was not so good.   US Inflation came in higher than expected with prices rising their fastest in 40 years but this was partly offset by Jay Powell’s comments.   The week ended with very poor retail sales data and another weak reading from the UoM Consumer sentiment.   EURUSD +0.54 +0.47% GBPUSD +0.86 +0.63% USDJPY -1.32 -1.14%   The US Dollar continues to lose ground versus all majors. The combination of higher inflation and weak consumer sentiment suggests growth may wain more in H2.   Gold +20 +1.12% UK OIL +4.75 +5.8% US OIL +5.54 +7.03% Bitcoin +1,518 +3.6%   Gold had a good week, with its two friends, a weak Dollar and higher inflation, helping it out.   Oil tracks the equity markets and is close to its late October highs as the winter heating season progresses.   Data / events for the week ahead   Not such busy week. One central bank meeting and our own Governor Bailey testifying in Parliament on the Financial Stability Report.   Monday   China GDP +4%, better but still worse than last year. US Bank Holiday for Martin Luther King Day.   Tuesday   Japan BoJ policy meeting. No change in rates or policy expected. Germany ZEW Economic Sentiment – survey of institutional investors. Signs of an up-turn? US Empire State manufacturing. Consensus seems to underperform actuals. Activity picking up slightly.   Wednesday   UK Inflation data. Calm at 5.2%. A shocker would bring the second rate rise into focus.   UK Governor Bailey testifying in Parliament on the Financial Stability Report.   Thursday   US Philly manufacturing index. Rebounding after December’s poor number. US Crude oil inventories.   Friday   UK Retail sales – not holding in there?   OK, so that rounds up what’s ahead this week.   I hope you have a good week in the markets. Check out the live trading webinar dates on this page – sign up for your free session.   Regards,   Jerry Miller Managing Director Trendsignal