Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 31/01/23
Global equity markets drifted sideways ahead of major central bank meetings (FED, ECB, BOE)
Key Takeaways
The Federal Reserve, due on Wednesday, is expected to slow down further the pace of interest rate increases, to +25 bps (FFR range: 4.50%-4.75%), from +50 bps in December and +75 bps in November. The statement’s forward guidance of “ongoing increases to interest rates will be appropriate” could be softened. Having said that, Chair Powell is expected to push back against market expectations for interest rate cuts in H2.2023.
The European Central Bank, due on Thursday, is expected to stay the course (+50 bps to 2.50% DFR), alongside hawkish guidance of “expects to raise them significantly further". The ECB will also provide implementation details on APP Quantitative Tightening. In December 2022, the ECB announced the reduction of reinvestment volumes by €15 billion, on average, per month, from March 2023 to June 2023 (circa ½ of maturing bonds), while the pace and path of quantitative tightening after June will be, probably, decided in following meetings.
As inflation decelerates, a slower pace of rate hikes could help officials to avoid the risk of over-tightening (see graph below). Indeed, the pace of interest rate increases is slowing, with some central banks even starting to pause their tightening cycles. The Bank of Canada shifted to an on-hold interest rate policy (4.5%) in the past week, albeit continues to suggest a bias toward further tightening (cumulative tightening of 425 basis points since March 2022).
Global equity markets traded water ahead of central bank meetings and lukewarm earnings announcements. So far, with 149 S&P500 companies having reported results, 70% have surpassed analyst estimates, below the 5-year average of 77%. Companies are reporting earnings that are +1.5% above estimates, standing at $53 per share versus estimates for $52, well below the 5-year average of +9%.
In the current week, 107 S&P500 companies will report results, including mega caps (Apple, Google, Meta and Amazon). Overall, consensus analysts expect S&P500 EPS growth of +4% in 2022 ($217) and EPS growth of +3% in 2023 ($224), down from +5% in 2022 ($219) and +7% in 2023 ($234) three months ago.
On a company level, Tesla’s market cap has rebounded sharply so far this year, rising by +35% to $526 bn, due to, inter alia, higher-than-expected EPS for Q4:2022 ($1.19 vs $1.12). Stock price declined by 65% or $672 billion in 2022, following market capitalization 1.2 times bigger than the combined valuation of top car manufacturers worldwide in November 2021.
The IMF raised its global growth outlook for the first time in a year, due to resilient consumer spending and China’s improved outlook due to the reopening of the economy. Global real GDP growth is expected at +2.9% (+0.2 pps compared with three months ago) from +3.4% in 2022.
Euro area real GDP increased by +0.1% qoq in Q4:2022 (+1.9% yoy), according to the 1st estimate, from +0.3% qoq in Q3. The outcome was above consensus estimates for -0.1% qoq, limiting the chance of a technical recession, given also that the economic momentum has posted signs of improvement recently, according to business indicators (PMIs, ESI, Ifo). For FY:2022, real GDP growth has been +3.5% (from +5.3% in 2021).
Key Takeaways
The Federal Reserve, due on Wednesday, is expected to slow down further the pace of interest rate increases, to +25 bps (FFR range: 4.50%-4.75%), from +50 bps in December and +75 bps in November. The statement’s forward guidance of “ongoing increases to interest rates will be appropriate” could be softened. Having said that, Chair Powell is expected to push back against market expectations for interest rate cuts in H2.2023.
The European Central Bank, due on Thursday, is expected to stay the course (+50 bps to 2.50% DFR), alongside hawkish guidance of “expects to raise them significantly further". The ECB will also provide implementation details on APP Quantitative Tightening. In December 2022, the ECB announced the reduction of reinvestment volumes by €15 billion, on average, per month, from March 2023 to June 2023 (circa ½ of maturing bonds), while the pace and path of quantitative tightening after June will be, probably, decided in following meetings.
As inflation decelerates, a slower pace of rate hikes could help officials to avoid the risk of over-tightening (see graph below). Indeed, the pace of interest rate increases is slowing, with some central banks even starting to pause their tightening cycles. The Bank of Canada shifted to an on-hold interest rate policy (4.5%) in the past week, albeit continues to suggest a bias toward further tightening (cumulative tightening of 425 basis points since March 2022).
Global equity markets traded water ahead of central bank meetings and lukewarm earnings announcements. So far, with 149 S&P500 companies having reported results, 70% have surpassed analyst estimates, below the 5-year average of 77%. Companies are reporting earnings that are +1.5% above estimates, standing at $53 per share versus estimates for $52, well below the 5-year average of +9%.
In the current week, 107 S&P500 companies will report results, including mega caps (Apple, Google, Meta and Amazon). Overall, consensus analysts expect S&P500 EPS growth of +4% in 2022 ($217) and EPS growth of +3% in 2023 ($224), down from +5% in 2022 ($219) and +7% in 2023 ($234) three months ago.
On a company level, Tesla’s market cap has rebounded sharply so far this year, rising by +35% to $526 bn, due to, inter alia, higher-than-expected EPS for Q4:2022 ($1.19 vs $1.12). Stock price declined by 65% or $672 billion in 2022, following market capitalization 1.2 times bigger than the combined valuation of top car manufacturers worldwide in November 2021.
The IMF raised its global growth outlook for the first time in a year, due to resilient consumer spending and China’s improved outlook due to the reopening of the economy. Global real GDP growth is expected at +2.9% (+0.2 pps compared with three months ago) from +3.4% in 2022.
Euro area real GDP increased by +0.1% qoq in Q4:2022 (+1.9% yoy), according to the 1st estimate, from +0.3% qoq in Q3. The outcome was above consensus estimates for -0.1% qoq, limiting the chance of a technical recession, given also that the economic momentum has posted signs of improvement recently, according to business indicators (PMIs, ESI, Ifo). For FY:2022, real GDP growth has been +3.5% (from +5.3% in 2021).