Wall Street will be a busy week this week, with the Federal Reserve’s interest rate decision the most concerned. In addition, technology giants and heavyweights such as Apple, Amazon, Alphabet and Meta will all release their quarterly earnings reports. Outside of the United States, the UK and European Central Bank meetings are also the focus of next week, and the inflation and GDP growth rates of important European economies, including Germany and France, will also be watched by investors.
This week’s trading notes (0129-0204)
1. Major central bank interest rate decisions
The U.S. Federal Reserve will announce its interest rate decision in the early hours of Thursday, Taipei time. The market generally expects that the pace of interest rate hikes will further slow down to 25 basis points per meeting. The question is when will it stop raising interest rates and what will be expressed at the press conference after the meeting .
Notably, some top analysts, such as Merrill Lynch’s Michael Hartnett, recently warned that hopes for a premature halt to rate hikes could end up in vain.
The Bank of England is widely expected to raise the official short-term interest rate by 50 basis points to 4.0%.
Economists at Barclays Research, however, believe the MPC will also guide expectations for a slower pace of future rate hikes. Barclays’ forecast is for two more quarter-point hikes to follow, with bank rates peaking at 4.50% in May.
For the ECB, the market expects a 0.5 percentage point rate hike at this meeting is a foregone conclusion, which would push the deposit rate to a 15-year high of 2.5%. However, traders saw only a 70% chance of another 50 basis point hike in March before starting to price in the possibility of a cut in the key rate starting around September.
2. Heavyweight quarterly financial report
Investors will see earnings reports from heavyweight companies this week, including big tech companies Apple, Amazon, Meta Platforms and Google parent Alphabet. Meta will report after the close on Wednesday, while Apple, Amazon and Alphabet will report after the close on Thursday.
Other companies scheduled to report this week include ExxonMobil, Pfizer, McDonald’s, UPS, Kintor, AMD, Eli Lilly, Merck, Starbucks and automakers Ford and General Motors.
Analysts expect one of the toughest earnings seasons ever for big tech companies as the industry grapples with stagnant sales and rising interest rates. Rising interest rates tend to have a negative impact on the tech sector and other growth industries that have high levels of debt to fund their growth. As interest rates rise, so does the cost of servicing those debts.
Meta’s earnings per share (EPS) are expected to plunge 38% to $2.25 on slowing advertising and Metaverse-related losses. Despite forecasting 6% revenue growth, analysts forecast Amazon’s EPS to plummet 83% to $0.21 as lower e-commerce sales weigh on profitability. Google’s parent company Alphabet’s forecast is relatively optimistic, and EPS is expected to decline by 13.4%, which is a relatively small decline.
3. European inflation and GDP data
European GDP data is due out this week and forecasts point to a quarterly contraction, with annualized growth expected to be 1.7%. The European Union still has to grapple with a possible recession this year despite burgeoning optimism around economic growth.
Headline inflation in the European economies appears to have peaked, but their focus remains on core inflation as energy prices have fallen sharply.