Saxo Spotlight: What’s on investors & traders radars this week? From US PCE to services data, to RBNZ hike to BHP, Rio results

US PCE and FOMC minutes will shed more light on inflation trends

After firmer prints for January CPI and PPI last week causing some market concern, focus now turns to the Fed’s preferred measure of inflation – the PCE – due this week. Bloomberg consensus expects January core PCE at 4.3% YoY (from 4.4% previously) while the MoM may be slightly hotter at 0.4% from 0.3% last month. Consumer spending is likely to have stayed robust, continuing to signal that the path of disinflation may not be linear. FOMC minutes from the Jan 31-Feb 1 meeting will also be out on Wednesday, but may be slightly dated in the wake of hotter inflation data since the meeting. As there was no dot plot at the meeting, it will be key to watch if any members commented on their expectations of terminal rate pricing. With some of the Fed members hinting at a potential 50bps rate hike again, it will be also important to watch if other members, especially those on the voting committee, remain open to that. 

Japan’s January CPI and BOJ Governor Ueda’s parliamentary hearings on tap

Japan reports January inflation on Friday, and the pressure on Bank of Japan to tighten policy will continue to build. Consensus expects a further increase in inflationary pressures, with headline rising to 4.3% YoY from 4.0% YoY previously, while the ex-fresh food and energy is likely to head higher to 3.3% YoY from 3.0% YoY in December. Service price pressures are likely to sustain as travel momentum picks up further with China reopening. Tokyo CPI data for the month also accelerated to 4.4% YoY in January from 3.9% previously. The same day, BoJ Governor-nominee Ueda is poised to appear before the lower house for parliamentary hearings. Ueda’s speech will be key in gauging a clear stance from the Governor candidate ahead of incumbent Kuroda’s end-of-term on April 8. Markets are expecting a hawkish shift amid the hot CPI and wage pressures, but Ueda will likely take the time to assess his policy options. 

Russia-Ukraine anniversary: Geopolitical tension keeps Saxo’s Defense basket in focus 

In Saxo’s equity theme baskets, the Defense basket was one of the top performers last week despite the news of China sanctions on US defence companies like Lockheed Martin and Raytheon due to balloon shooting incident. Geopolitical tensions, and therefore the Defense stocks, will remain in focus again this week as we approach the one-year anniversary of Russian invasion of Ukraine on 24 February. Biden will be visiting NATO ally Poland to talk about the importance of the international community’s resolve, and unity in supporting Ukraine, adding that the next weeks and months are going to be difficult for Ukraine’s forces, and the US is going to continue to stand by them. Meanwhile, China’s top diplomat Wang Yi kicked off his week-long tour through Europe in Paris on Wednesday. The diplomat is expected to travel to Italy, Germany, and Hungary – with a final stop in Russia. There were also some reports suggesting that the US has information that China may be considering supplying arms to Russia. Putin will also be giving a state of the nation address, and focus will be on any risks of further escalation noting that 500k Russian troops have been mobilised. 

Flash PMIs to be the next test of the soft landing narrative 

This week will bring flash PMIs for February in the Eurozone, UK as well as the US. Sustained strength is likely for the Eurozone PMIs across manufacturing and services after the jump seen in January, but the impact of monetary tightening remains key to watch given the still significant amount of rate hikes being priced in for the ECB. The PMIs for UK are however likely to continue to remain in contractionary territory, suggesting the risk of recession has not gone away. Germany’s Ifo and ZEW surveys for February will also provide a further read on growth at the start of 2023. US PMIs, likewise, are also likely to remain in contraction despite some improvement, but the key in US remains the ISM surveys more than the S&P PMIs. 

Downshift in RBNZ’s rate hike trajectory could signal NZD weakness

The Reserve Bank of New Zealand meets on Wednesday, 22 February and consensus expects a return to 50bps rate hikes after a 75bps in November when even the possibility of a 100bps was debated. Economic data has been soft since the last meeting, with 2-year inflation expectations easing and unemployment rate seeing a slight uptick. However, Cyclone Gabrielle has brought fresh risks of inflation pressures in the short-term. Still, risks of further kiwi weakness loom large after NZD has weakened 1.6% against the USD so far this year. If RBNZ signals that the peak for the current rate hike cycle is near, the 38.2% retracement of NZDUSD uptrend from the October low could be challenged. 

Commodity giants - BHP (BHP) and Rio Tinto (RIO) results ahead - setting the course for copper and aluminium companies in 2023

BHP and Rio Tinto report this week (Monday 21, Tuesday 22 respectively) and if Fortescue was something to go by with stronger than expected profits - supported by iron ore demand rising 4% than a year earlier - then BHP and Rio could surprise to the upside. The focus will be on their outlooks – with both BHP and Rio expected to give optimistic forecasts for the year amid Chinese demand picking. They may also shed light on wages picking up and further inflationary pressures. Iron ore, and copper and coal giant BHP is expected to declare a full-year gross dividend yield of 14% with earnings (EBITDA) of $40.6 billion in 2022 and free cashflows of $26 billion. Iron ore, aluminium and copper giant Rio is expected to declare a full-year gross dividend yield of about 11%, with earnings (EBITDA) of $27.1 billion in 2022 and free cash flow of $11.2 billion.  Saxo’s preferred commodity exposure is aluminium and copper (and lithium). To track Australia’s largest Resources companies, refer to Saxo's Australian Resources theme Basket. 

Lithium companies Allkem (AKE) and Pilbara Minerals (PLS) results ahead – they could follow Albemarle which paved a positive outlook 

After the world's biggest lithium company Albemarle gave a stronger than expected sales outlook for 2023 paving a positive course for lithium companies this year; with China’s reopening to provide extra momentum as demand for EV picks up the market will pay close attention to AKE and PLS’s results on Friday. ALB sees net sales growing to $11.3-$12.9 billion, and EBITDA getting as high as $5.1 billion – so given tight supply and rising demand, you may expect positive outlooks from Australian counterparts - Pilbara Minerals and Allkem. Pay attention to their outlook commentary; earnings, cashflows, forward capital expenditure and importantly expectations of lithium pricing - which underpins earnings. To track lithium companies, refer to Saxo’s Lithium equity theme Basket

Macro data on watch this week

Monday 20 February

• US, Canada Market Holiday
• China (Mainland) 1Y and 5Y Loan Prime Rate (Feb)
• Malaysia Trade (Jan)
• Taiwan Export Orders (Jan)
• Eurozone Consumer Confidence (Feb, flash)
• Thailand Customs-Based Trade Data (Jan)

Tuesday 21 February

• Australia Judo Bank Flash PMI, Manufacturing & Services*
• Japan au Jibun Bank Flash Manufacturing PMI*
• UK S&P Global/CIPS Flash PMI, Manufacturing & Services*
• Germany S&P Global Flash PMI, Manufacturing & Services*
• France S&P Global Flash PMI, Manufacturing & Services*
• Eurozone S&P Global Flash PMI, Manufacturing & Services*
• US S&P Global Flash PMI, Manufacturing & Services*
• Australia RBA Meeting Minutes (Feb)
• New Zealand PPI (Q4)
• Germany ZEW Economic Sentiment (Feb)
• Canada CPI (Jan)
• Canada Retail Sales (Dec)
• United States Existing Home Sales (Jan)

Wednesday 22 February

• New Zealand Trade Balance (Jan)
• Japan Service PPI (Jan)
• Australia Composite Leading Index (Jan)
• Australia Wage Price Index (Q4)
• New Zealand Cash Rate (22 Feb)
• Germany CPI (Jan, final)
• Taiwan Jobless Rate (Jan)
• Germany Ifo Business Climate New (Feb)
• Germany CPI Prelim MM (Feb)
• United Kingdom House Prices (Feb)
• United States FOMC Meeting Minutes (Feb)

Thursday 23 February

• Australia Capital Expenditure (Q4)
• South Korea Bank of Korea Base Rate (Feb)
• Singapore Consumer Price Index (Jan)
• Taiwan Industrial Output (Jan)
• Eurozone HICP (Jan, final)
• United States GDP (Q4, 2nd estimate)
• United States Initial Jobless Claims
• Thailand Manufacturing Prod YY (Jan)
  
  

Friday 24 February

• Japan CPI (Jan)
• United Kingdom GfK Consumer Confidence (Feb)
• Singapore Manufacturing Output (Jan)
• Germany Detailed GDP (Q4)
• Germany GfK Consumer Sentiment (Mar)
• United States Personal Income and Consumption (Jan)
• United States Core PCE Price Index (Jan)
• United States UoM Sentiment (Feb, final)
• United States New Home Sales (Jan)
• Canada Current Account C$ (Q4)
  

Company earnings to watch

• Monday Feb 20
  Williams Cos

• Tuesday Feb 21
  Teck Resources, Gapgemini, Engie, HSBC, Walmart, Home Depot, Medtronic, Palo Alto Networks, Singapore Airlines, BHP Group, Alumina, Coles

• Wednesday Feb 22
  Rio Tinto, Santos, Oz Minerals, Domino’s Pizza Enterprises, Genmab, Danone, Lloyds Banking Group, Iberdrola, Nvidia, TJX, Stellantis, Baidu, eBay

• Thursday Feb 23
  EssilorLuxottica, Deutsche Telekom, Munich Re, Kuaishou Technology, Eni, Anglo American, BAE Systems, Singapore bank UOB, Qantas, Alibaba

• Friday Feb 24 
  Block (Square), Lynas Rare Earths, Mineral Resources, Allkem and Pilbara Minerals (in lithium), Singapore bank OCBC, BASF, Monster Beverage