US EARLY MORNING: Index futures are around flat after Thursday's CPI-inspired upside; big bank earnings ahead

SNAPSHOT: US equity futures are trading a touch under neutral following Thursday’s rally, which was underpinned by cooling headline CPI data which crystallises expectations that the Federal Reserve will downshift to a 25bps rate hike increment at its February 1st meeting. The Fed officials who have spoken in wake of the data are generally supportive of this argument; 2023 voter Harker suggested that it was time to downshift to 25bps, but warned that rates would likely still need to be lifted above 5.00% (money markets are currently pricing a peak below this level) – a line echoed by the Fed’s Bullard, who has previously also warned that rates would rise above that 5.00% mark. Non-voter Barkin also expressed support for a slower rate hike path, but warned that the cycle could be longer and potentially higher. In terms of the sell-side views, Goldman Sachs said the data solidified the case for a step down to a 25bps hike in February, and continues to expect 25bps hikes at the February, March, and May confabs. We have another round of Fedspeak today, by way of voters Williams, Kashkari and Harker (again), and we expect these officials will reiterate these themes. Additionally, the inflation components within the prelim January University of Michigan data will contribute to the debate (the NY Fed’s survey of consumer expectations, released earlier in the week, gave a more mixed take on consumer’s views on inflation). Elsewhere, corporate reporting season gets underway, with major banks set to publish Q4 numbers.

EARNINGS SEASON: The Q4 corporate reporting season will get underway in earnest, with focus on the heavyweight financial institutions, as Blackrock (BLK), Bank of New York Mellon (BK), Bank of America (BAC), Citi (C), JPMorgan (JPM), Wells Fargo (WFC) all unveil numbers. There have been some anecdotal murmurings of lower deal making activity amid challenging economic conditions, but higher interest rates are expected to be supportive for banks. Investors will also be focussed on how these institutions are managing expenses, and what sorts of provisions are being made for loan losses, as some forecast that the US economy will tumble into a recession this year. Additionally, banks own guidance and views on the economic outlook will be of note. Elsewhere, healthcare giant UnitedHealth (UNH) will also report. As a reminder, Newsquawk publishes both Daily and Weekly research sheets with the consensus estimates; today's edition can be accessed here.

WEEKLY FLOWS: BofA's weekly flow data shows investors moved into bonds and cash ahead of the December CPI data, shunning stocks. In the week (data for the week through January 12th), bond funds saw USD 17.5bln of inflows (IG bonds saw the largest inflows since July 2021). Stocks overall saw 7.2bln of inflows, although US stock funds saw outflows of USD 2.6bln. Europe saw a 48th week of outflows at USD 0.5bln, Japan saw a sixth week of inflows at USD 1.1bln, EM stocks saw a fourth week of inflows at USD 2.2bln. By style, value funds saw USD 1.7bln of outflows, while growth funds had USD 1.3bln of outflows. Cash saw USD 8.3bln of inflows. BofA's strategists said inflation and jobless claims pushed stocks higher, spurring bets for rate cuts from the second half of this year, although "peak Goldilocks" is seen coming soon.

DAY AHEAD: Events will pick up as US participants arrive and as corporate earnings season gets underway, with Blackrock (BLK), Bank of New York Mellon (BK), Bank of America (BAC), Citi (C), JPMorgan (JPM), Wells Fargo (WFC) all set to unveil Q4 numbers, while health care giant United Health (UNH) will also report. The University of Michigan's prelim January consumer confidence survey will be eyed, with particular focus on the inflation metrics, to see if consumers expectations on price pressures are also cooling (the NY Fed's update earlier in the week was mixed, with consumer expectations of near-term inflation easing, but the longer-term views ticked up a little). On the speakers front, Fed voters Williams, Kashkari and Harker will give remarks in wake of the December CPI data, which has crystalised expectations for a 25bps rate hike on February 1st. Elsewhere, US import and export prices will be published. After hours, Moody's may announce updated ratings on Spain, while Fitch may update on Poland. Our full Day Ahead schedule sheet can be accessed here.









13 Jan 2023 - 09:20- Research Sheet- Source: Newsquawk

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