Week ahead: ECB press conference, Joe Biden enters White House and earnings season rolls on

Looking forward to next week, the ECB holds its first meeting and press conference for this year. Is inflation heading the EU’s way? Elsewhere, earnings season continues with more and more large caps reporting earnings and Joe Biden finally enters the White House as the Trump era finally comes to an end.

First ECB meeting of 2021

The ECB holds its first meeting and press conference of 2021 on Thursday 21st January against a backdrop of heightened stimulus and a warning for governments to not to be too hasty when retightening their post-lockdown belts.

Christine Lagarde, ECB President, has warned to avoid against reacting swiftly against any improvement in economic conditions this year if inflation starts to bite. Speaking on Wednesday 14th January, Lagarde predicted a rebound due to “pent up demand” but said this wouldn’t be enough to warrant a major readjustment in monetary policy as this could lead to serious risks.

The pandemic has led to a sharp rise in household savings across Europe with a corresponding drop in services activity like restaurants, holidays and trips to the cinema. This has contributed to downward pressure on prices precipitated by lower energy costs and VAT cuts in countries like Germany. As such, the ECB inflation rate dropped in the negative in the final months of 2020.

Another deflation cause is the strengthening of the EUR against USD, which has hit three-year highs recently. Import prices are lower, while exports are higher.

Prices may start to track higher in the coming months, according to ECB forecasts. Its latest eurozone forecasts suggest consumer price inflation will reach 1% in 2021, and 1.3% by 2023.

In December 2020, the ECB expanded its main stimulus policy. Its emergency bond-buying programme increased €500bn to €1.85tn. The ECB also readjusted its economic forecasts, cutting them in response to the pandemic’s resurgence across Europe.

The central bank now predicts a pan-EU growth rate of 3.9% in 2021, factoring in longer lockdown measures. However, it did say that any lockdowns post-March could have severe economic affects. Germany’s latest GDP figures show a 5% contraction, so if the bloc’s biggest economy is suffering, what will the knock-on effect be for the rest?

Earnings season continues on Wall Street

Earnings season continues in earnest as the large caps continue a steady stream of Q4 2020 reports.

US big banks kicked things off last week, with JPMorgan Chase, Citigroup, and Wells Fargo giving their initial reports. This week will see a more varied approach as large cap companies and blue chips across all sectors report.

Netflix is one of the earnings to watch this week. The market expects the streaming service to deliver a year-on-year increase in revenues, but last quarter’s reports only just beat market expectations. Q3 EPS was significantly below forecasts, at $1.74 against the $2.12 analysts expected. Will this be the case again? Asia-Pacific has been the key growth market for Netflix in the lockdown world, so it’ll be interesting to see if the streamer has been able to build on its earlier gains there while offsetting any potential drops in other geographies.

Joe Biden inauguration

President-elect Joe Biden becomes President Joe Biden on January 20th, drawing a line under the Trump presidency. Four years since the billionaire reality TV star took the White House, America is as divided as ever. Could Biden prove the emollient the United States requires to become a little more united once again?

At the time of writing President Trump is accused of allegedly instigating the recent Capitol Building riots with inflammatory rhetoric and is about to be hit by his second impeachment trial of his term. No US President has ever been impeached twice during their term. Even with under a week to go for his full term, Trump could be removed from office and may even face criminal charges – an ignominious end to an sometimes less-than-dignified presidency.

But what about the start of the Biden era? How will markets react? There are several factors to watch out for as Biden starts his term, such as:

• Fiscal stimulus – Investor confidence could be bolstered by potential stimulus packages Biden is expected to introduce. He has vowed “trillions” in stimulus once he enters the White House. The Federal Reserve could also continue giving major supports to markets during the new era’s first couple of weeks.
• Foreign trade – Biden is expected to take a multi-lateral approach to foreign trade, and his policies could be more reconciliatory compared with Trump’s more chauvinistic approach.
• Covid-19 – After a laissez-faire approach to pandemic control Trump’s administration deployed, Biden is said to favour a more hands-on approach. His plans include a speedier vaccine rollout, a more detailed plan to get children back into school and asking all Americans to wear masks for the first 100 days of his term to combat the virus spread. Essentially, measures to make it so more citizens can get back to work and get the economy rolling again.

Upon Joe Biden’s election in November, the S&P500 rose 5.2%. Will his inauguration cause the same positive bump for this index?

Major economic data

Key earnings data