Week in review: earnings disappoint slightly
US equities registered their biggest weekly loss YTD in response to mixed corporate earnings. While most blue chip and mid-cap companies beat both top and bottom line forecasts, many smaller companies failed to deliver a positive surprise. In effect, small-caps were the weakest performers, declining in 3.2%-3.4% range w/w. Meanwhile, average declines in large and mid-caps were approximately twice as small. Notably, it was consumer focused companies that underperformed expectations the most (Lyft, Chipotle, and Mattel are some of the examples). Moreover, the US consumer credit in December fell by a staggering 59.0% m/m, coming in less than half the amount forecasted ($11.6bn vs $25.0bn estimate), thus hitting the 1-year low. These two observations hint on deteriorating consumer purchasing power, typical to latter stages of economic downturns.
Europe delivered a series of negative macroeconomic releases. Firstly, Euro area retail sales kept declining in December. The latest figure of -2.8% y/y is slightly worse than markets expected and represents the seventh consecutive monthly decline (excluding September’s slight rise of 0.1%).
Meanwhile, though surprising on the upside, the UK activity data are showing further contraction. In December, monthly GDP shrank for the first time in more than a year, coming in at -0.1% y/y. Industrial and manufacturing production shrank by 4.0% and 5.7%, respectively (vs -5.3% and -6.1% forecasts).
Week ahead: US CPI & activity in focus
The US inflation data for January is to be reported on Tuesday. The headline CPI is expected to decline for the 9th consecutive month to 6.2% y/y from December’s 6.5%, while the core figure is expected to fall to 5.5% y/y from December’s 5.7%. Importantly, however, many analysts are revising their forecasts upwards in the face of the fresh price data. An unexpected rise in used car prices is the major reason underlying revisions. The Producer Price Index (PPI) will be reported on Thursday and is expected to rise to 0.4% m/m from December’s half a percent deflation.
Lastly, the US retail sales and industrial production data will come in on Wednesday, while the Philadelphia Fed Manufacturing Index will be read on Thursday. As recession fears have worsened in past weeks, negative surprise from these metrics is likely to be met with selloffs in markets (given CPI reading earlier this week matches estimates).
