ASX set to start higher; Commodities slip

US Earnings

Profit reporting season in the US will kick into high-gear this week, as the market welcomes the meatiest fortnight of the earnings period. The likes of Tesla, Apple and Facebook all report on Thursday morning, while Microsoft, Visa, McDonalds and 3M will also deliver earnings during the week. So far, S&P500 companies have delivered very strong results for 4Q: according to financial data company fact set, of the 13 per cent of companies that have reported, 86 per cent of have beaten earnings estimates, primarily due to much stronger than expected profits from Wall Street’s big banks. As it currently stands, analysts now expect S&P500 companies to deliver earnings grown of -4.7 per cent this quarter – an increase from the -9.2 per cent tipped at the start of earnings season.

US Federal Reserve

The US Federal Reserve will meet for the first time in 2021 on Thursday morning. Market participants aren’t expecting any changes in policy from the Fed, with interest rates to remain at (effectively) 0 per cent, and the bank’s asset purchasing program to remain largely unchanged. Despite this, investors will be carefully following the Fed’s language and forward guidance, as commentary grows in the market that, in response to the potential of a faster economic recovery and potential inflationary pressures building in the future, the Fed may be forced to change its guidance of interest rates, and flag the possible unwind of its balance sheet sooner than previously thought.

US GDP data

Market participants will receive a status check of the US economy this week, as the advanced print of the last quarter’s GDP figures get released. Economists are estimating relatively robust growth for the US economy, with consensus forecasts pointing to a 4.2 per cent expansion in GDP for the quarter. The data will feed into the continued hopes and speculation amongst market participants about US President Biden’s stimulus package. If the GDP figures miss expectations, it ought to give Biden’s administration the greater impetus to push through his proposed $US1.9 Trillion package in full; while if the figures exceed expectations, push-back against the size of the package, which grew last week in response to some better than expected economic data, from Congressional Republicans and some Democrats may increase.

Australian CPI

It’s a relatively light week for economic and corporate data in Australia this week. The big release will be CPI figures for the quarter, which economists are estimating ought to reveal quarter-over-quarter price growth in the Australian economy of 0.7 per cent. Though a relatively large number, the figure will be boosted by baseline effects, a jump in energy prices and the end of some government subsidies in the last quarter. A big jump in inflation may also impact the markets pricing of RBA policy in the future, with market participants speculating that the central bank’s QE program may be unwound sooner than expected in response to a stronger economic rebound from the COVID-19 recession.

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This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.