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LGT Navigator: Earnings season moves into focus

January 14, 2020

Hopes for a further easing of the tension in the Iran conflict and the prospect of signing a partial agreement in the trade dispute between the US and China mostly supported global stock markets at the beginning of the week. The focus is now shifting to the upcoming corporate reporting season in the US. The first two major banks to present their quarterly balance sheets today are JPMorgan Chase and Citigroup.

Earnings Season

In addition to the anticipated conclusion of a “Phase 1 deal” between Washington and Beijing, investors will now focus their attention primarily on the quarterly results of American blue chip companies. On average, analysts expect the 500 largest US companies to post another moderate decline in profits in the fourth quarter.

China's foreign trade with a strong year-end

Despite the ongoing trade conflict with the United States, China's exports grew more strongly than expected in December. Exports of the world's second largest economy rose by +9% (consensus +2.9%) at the end of last year compared with the same period of the previous year. At the same time, imports increased by +17.7% (+8.6%). China's imports from the US collapsed by almost -21% and Chinese exports to the US fell by -12.5%. In 2019 as a whole the trade conflict is clearly visible, as China's exports in US dollars rose by only +0.5% and imports fell by -2.8%. However, analysts had expected even weaker figures.

Washington takes a step towards Beijing

The US government no longer classifies China as a currency manipulator. According to the US Treasury Department, China has made “enforceable commitments to refrain from devaluing competition”. The Chinese government will take steps to avoid a persistently weak currency and to allow greater market opening and strengthen its long-term growth prospects.

OECD indicators signal moderate economic growth

The Organization for Economic Cooperation and Development (OECD) yesterday presented its leading indicators for the development of the global economy. According to these indicators, growth in most major OECD countries should stabilize below the long-term trend. The leading indicators point to stable growth momentum in the euro zone, Japan and Canada. In the US, Germany and the UK, the OECD confirmed signs of stabilization. Among the largest non-OECD emerging markets, China and Russia show stable growth momentum and Brazil shows slightly improved growth momentum. In the meantime, however, India's economy has lost some of its momentum.

Probability of rate cuts in the UK appear to be increasing

Speculation that the Bank of England will soon relax interest rates received a boost yesterday after the latest data showed that the British economy contracted significantly in November. According to the ONS, economic output in November shrank by -0.3% month-on-month. By the end of last week, central bank Chairman Mark Carney had already announced that he would cut interest rates if the economy lost momentum and was negatively affected by the Brexit. As a result, the British Pound came under devaluation pressure and yields on British government bonds fell.

Speculations about the end of the Franco-Japanese tripartite alliance

The shares of the French car manufacturer Renault fell yesterday by at times around -4% to a six-year low after media reports had reported that the alliance with Japanese partner Nissan is increasingly crumbling. After the spectacular escape of former top manager Carlos Ghosn from Japan, Nissan is now, after 20 years, to consider breaking the alliance with Renault and Mitsubishi, it was said. This morning, Renault denied rumors of a break-up of the cooperation with Nissan. The alliance between Renault and its Japanese partners is “solid, robust, anything but dead”, commented Renault boss Jean-Philippe Senard.



Economic Indicators January 14

MEZ Country Indicator Last
14:30 US Consumer Prices (m/m) +0.3%
14:30 US Consumer Prices (y/y) +2.1%
14:30 US Core Consumer Prices (y/y) +2.3%

Earnings Calendar January 14

Country Corporate Period
US JPMorgan Chase Q4
US Citigroup Q4



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