US earnings season kicks off
26-07-2021
George Lucas, Raiz Group CEO
US earnings season kicks off
We’ve seen the US Q2 earnings season start, and it has so far been a strong start. Just over 20 per cent of the firms in the S&P 500 have reported Q2 earnings, and the news has overwhelmingly been very good, with a record high 88 per cent of firms beating analyst consensus expectations.
The outlook for earnings also looks robust. Expectations for future earnings have generally continued to climb from already-high levels, with earnings expected to grow rapidly into 2023. In fact, earnings on average are projected to be roughly 50 per cent higher in 2023 than they were in the year immediately prior to the pandemic, which puts the forecasts in context. The strong earnings results have helped support equity markets globally, which have had a few wobbles recently but are back on track at the moment.
US Fed to meet, expected to start tapering asset purchases
Looking ahead, one of the main events this week will be the two-day US Federal Reserve Open Markets Committee (FOMC) meeting that concludes on Wednesday.
Although several regional Fed Presidents want an earlier tapering of the Fed’s asset purchases we do not expect the central bank to issue any new guidance, with most officials believing the economy still has some way to go to make “substantial further progress” towards the Fed’s goals.
Australia to get Q2 inflation data
In Australia, this week we get inflation data and the consumer price index for the June quarter, with headline inflation likely to have jumped from 1.1 per cent to about 3.7 per cent and the core rate to have risen from 1.2 per cent to roughly 1.6 per cent. But we will have to wait for the release.
Investors closely watch developments in China
In China, we were expecting cuts to the loan prime rate (LPR) following cuts in the reserve requirement ratio (RRR) — the amount of cash that banks must hold as reserves — on 9 July. This could have suggested that the People’s Bank of China (PBOC) was embarking on an easing cycle however the LPR was left on hold.
Hopefully we will see the LPR cut at some point over the next few months, but the PBOC appears to be in no hurry. Saying all this, output in China’s wider economy still remains strong and whilst this continues there is no pressure to ease the LPR. If growth in China remains strong, we should start to see strength back into the AUD/USD cross rate.
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