Netflix Earnings; BOJ Rate Decision and January PMIs: Top Event Risk Ahead

Netflix Earnings; BOJ Rate Decision and January PMIs: Top Event Risk Ahead

Talking Points:

• Before the FOMC is due to weigh whether to cut again or hold next week, we have the BOJ and expectations of a hike
• Earnings season will transition from last week’s reporting from the major banks to the start of the major tech players, starting with Netflix
• Last week, the IMF and World Bank issued updates to growth forecasts and reinforced the weakest global pace since 2000; will January PMIs reinforce the trend?

There is certainly a docket of meaningful global macro event risk ahead of us, but is it of the type that would truly drive the market? And can it override any inertia that may arise in anticipation of what the following week will hold – notably an expected FOMC hold and United States’ 4Q GDP data among other listings? Chart of S&P 500 Average Performance and Volatility by Calendar Week

Chart of S&P 500 Average Performance and Volatility by Calendar Week

Source: John Kicklighter, TradingView

 

Consulting history, the fourth week of the year averages a contraction for the S&P 500 over the past century. That is the only averaged loss for the ‘market benchmark’ in the first 7 weeks of trade. Of course, ‘this time can be different’ is a mantra that should be close to our lips, but this past week’s rally and the proximity to congestion resistance may very well shift the potentiality of a push higher based on complacency.

Calendar of Major Global Macro Events Scheduled for Week

Source: John Kicklighter, StoneX

 

For scheduled event risk for the week ahead of us, it is important to look for event risk and outcomes that can tap deeper thematic trends and override any sentiment that it would be better to hold off until next week’s important event risk. Though there is certainly debate to be had as to what was driving the market’s to their rally this past week, it is worth pointing out a notable correlation and strong move from JPMorgan this past week. The United States’ 12th largest market cap stock, and its largest financial company, reported earnings that beat expectations this past week.

In the week ahead, we have more financial companies reporting, but their broader impact is materially smaller. That said, we may be moving on in our focus regardless. That is because on tap, we have Netflix earnings. The streamer is one of the Magnificent 7 and thereby a tech leader – with a consumer appetite bent to its performance. A short fall would be the most market-moving outcome given the buoyancy in the market recently and the assumption that GAAP is easy to beat.

Nasdaq 100 and Netflix with 20-Day Correlation (Daily)

Source: John Kicklighter, TradingView

 

Looking forward to next week, a top event is the FOMC (Federal Open Market Committee) rate decision. Given the cuts at the back part of 2024 and the change in tone from the central bank of late, this policy meeting will be of great concern. Is it perhaps that anticipation that will make the Bank of Japan’s (BOJ) rate decision this week even more interesting. For three-plus decades, Japan has maintained an ultraloose policy that has often conflicted with global counterparts and drove investment capital out of Japan.

Economists are debating a rate hike from the group that will push it ever so slightly into positive territory – which is highly atypical for the country. Would a 0.50 percent benchmark register against a 4.50 percent (top end) rate – especially as it pulls out of a dovish expectation trend? USDJPY is certainly a market to watch for response.

Chart of Relative Monetary Policy Stance

Source: John Kicklighter

 

Finally, at the end of this week, we will be wading into a time-sensitive GDP update. The advanced reading of January PMIs for the major developed world economies is a look into economic trends as the World Bank is warning that the global economy is running at a pace that hasn’t been so weak since 2000. Furthermore, it precedes the release of US 4Q GDP next week (with European and UK updates due later), which is more official but not necessarily market moving. Should the narrative of a stagflation or steady economic recovery garner any meaningful traction one way or the other, it wouldn’t be difficult for the market to translate news into price action. However, I would keep the barrier to expectations fairly high.

Chart of Major Economies Composite PMIs (Monthly)

Source: John Kicklighter, TradingView

 

-- Written by John Kicklighter, Global Head of Content