Take Five: All about inflation
(Updates story first published on Friday with weekend Italy developments in theme three, no other changes to text)
Jan 24 (Reuters) - Inflation is front and centre: Markets will look to the U.S. Federal Reserve for hints on when and how much it may tighten policy to combat inflation at 40-year highs, whether CPI data forces Australia to admit the need for earlier rate rises, and what PMIs say about spiralling service sector costs.
Earnings too showcase companies' wage cost pressures. And finally - politics will complicate the picture with Russia, Ukraine and Italy all in the frame.
Here's your week ahead in markets from Ira Iosebashvili @IraIosebashvili in New York, Kevin Buckland Link in Tokyo, Dhara Ranasinghe @DharaRanasinghe, Julien Ponthus @JulienReuters and Sujata Rao @reutersSujataR in London.
1/ COUNTDOWN TO LIFTOFF
If markets have it right, the Fed's Jan.25-26 meeting will be the last one before interest rates lift off.
Roughly four rate hikes are priced for this year, starting in March, but the rates outlook aside, markets will listen for what the Fed says about its $8-plus trillion balance sheet.
December meeting minutes showed lengthy discussions about reducing bond holdings. Fed Chairman Jerome Powell said the balance sheet could be shrunk faster than in the past.
A Reuters poll predicts Link the Fed to start trimming its balance sheet by end-September, though some reckon it may happen sooner and faster than flagged. Hawkish signals could extend the selloff in Treasuries and tech shares.
Meanwhile, the Bank of Canada Link isn't waiting around for its neighbour and could commence raising rates on Wednesday.
2/EARNINGS: MIND THE ATLANTIC GAP!
Could 2022 could be the year European equities break a six-year run of underperformance against U.S. peers?
The old continent is home to an army of cyclical and value (read cheap) stocks like banks, which typically outperform tech in times of monetary tightening. With Wall Street lagging European markets this year, this dynamic seems already at play.
The Q4 earnings season offers encouragement to Europe bulls; Refinitiv I/B/E/S data shows earnings surging 49% year-on-year. Luxury groups Richemont Link and Burberry awed markets with quarterly updates. European profits also appear less threatened by wage inflation Link Barclays analysts note.
U.S. earnings are seen growing 23%, and markets are still coming to terms with Goldman Sachs' Link profit miss and hefty cost increases.
In coming days, European names LVMH, STMicro and Philips are among those reporting and IBM, Verizon and Apple in the U.S..
3/WANTED: NEW ITALY PRESIDENT
Italy needs a new president and the complex process Link to replace outgoing Sergio Mattarella kicks off Monday, with Prime Minister Mario Draghi a frontrunner for the post.
It could mean weeks of political instability Link for Italy. If Draghi gets the job, a new prime minister must be found and the multi-party coalition supporting his government could unravel. The same could happen if the parties fail to agree an alternative candidate.
Former prime minister Silvio Berlusconi pulled out of the race Link on Saturday.
And all this just as bond market angst grows about rising inflation Link and a more aggressive ECB response. Russia's troop build-up near Ukraine's border Link is stoking war fears, meaning geopolitical developments more broadly will continue to grab markets' attention.
4/RATES UP DOWN UNDER?
The Fed is not the only central bank to have underestimated inflation. Australian CPI data on Tuesday may well force Reserve Bank of Australia Governor Philip Lowe to capitulate on his long-held contention Link that rate hikes this year are "extremely unlikely."
Money markets have long doubted Lowe's scenario, and are pricing a first hike to a quarter percent as soon as May with at least three additional quarter-point increases by year-end. RBAWATCH
Australia's jobless rate Link has plunged to its lowest since 2008 and some economists predict core inflation could jump to its highest since 2009, at 2.5%. At the very least, such a reading should seal an end to pandemic-time bond purchases at the Feb. 1 RBA meeting.
Considering the spread of Omicron, global business activity held up surprisingly well in December, purchasing managers indexes Link (PMI) showed. But when advance January PMIs emerge on Monday, focus will be on how cost pressures are shaping up.
Composite input prices slipped last month as factories' supply chain delays eased, but U.S. service sector input prices rose to the highest since 2009. In Europe they stayed near November's record high, and rose in China for the 18th straight month.
In countries where services contribute the lion's share of economic output, soaring costs add more uncertainty to the inflation outlook.
FED AND YIELDS Link
STOXX vs S&P Earnings Forecasts Link
Wages growth Link
Italy needs a new president Link
Input costs Link
RBA inflation test Link
Additional reporting by Gavin Jones in Rome and Danilo Masoni
in Milan; Compiled by Sujata Rao; editing by Mark Heinrich
Mga Kaugnay na Asset
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.