Week Ahead: US earnings season is here

All eyes on the US this week. Earning seasons kicks off in earnest with the big Wall Street investment banks posting their latest reports after a year in which trading revenues have offset bad loans – will this trend continue? Elsewhere US CPI comes into focus – is inflation on its way? US unemployment claims are back too, showing another week of job losses, and we also forecast how US retail sales could look following November/December holiday spending. 

US Earnings Season 

Earnings season kicks off on Wall Street with big banks being the first to announce their latest quarterly financials this week. JP Morgan, Citigroup, and Wells Fargo will be the big three breaking out their ledgers and letting the market know what happened for their Q4 2020 earnings all on January 15th. 

JPMorgan Chase has already declared it is awarding dividends for the 10th consecutive year. Shares have been on a round trip over the last 12 months due to the pandemic but have recovered strongly thanks to vaccines and rising bond yields and are now nearly back to the $140 they traded at this time last year. 

In Q3, JPM net income was up 4% and earnings-per-share posted 9% yearly growth at $2.92. Return on equity showed a robust 15% too alongside a solid 58% efficiency ratio, so JPMorgan might be showing it has what it takes to slog out in what’s proved to be a tough environment for banks. 

Citigroup plans to restart stock repurchases in 2021 after the Fed gave the green light to big US bank stock buybacks under certain conditions in December 2020. It’s also attracting positive attention from analysts, who predict its 12-month EPS could rise solidly. It is expected to earn $4.27 per share going forward, which means investors will be watching this earnings release with high interest. Citi will also continue to pay shareholders a quarterly $0.51 dividend as usual. 

Wells Fargo is probably not as jubilant as it prepares its Q4 2020 earnings. The US third-largest bank’s stock dropped 43% in 2020 amidst sales scandals, revenue challenges, changes in management, and a halt in stock buybacks. This compares with overall banking industry decline of 18.2%. Unlike the likes of JPM and Citi, Wells Fargo cannot lean on an investment banking or trading revenues to get it out of the hole created by bad loans. 

US Retail Sales 

US retail sales are announced this week, coming fresh from the holiday season.  

The holiday period is traditionally a time where shoppers splurge big time and a boon for retailers as you’d expect. But with coronavirus weighing on sentiment, expectations were pretty low for December’s stats. 

Mastercard SpendingPulse may show the picture is as rosy as jolly old St. Nick’s cheeks with 75-day holiday period sales, incorporating Thanksgiving and Christmas, beating expectations. Sales were up 3% against the 2.4% forecast and online sales were up a huge 49%.  

Will this release reflect the positive outlook provided by Mastercard? Fitch is advising cool headedness. US retail has been up against the Covid pandemic, as well as associated factors like joblessness and loss of income for key buying groups. The data is released on Friday 15th so keep an eye on it. 

US CPI 

Core CPI data is released this week, indicating if inflation is about to sweep into the US. Stimulus packages designed to relieve the economic pressures of Covid-19 may also stimulate inflation in 2021. Last week US 10-year breakevens rose above 2% for the first time in 2 years, indicating growing fears in the market that inflation will start to emerge. 

The latest release, all the way back in December 2020 and detailing November’s CPI performance, show a 0.2% rise for urban consumers. That figured into a 1.2% rise overall. November’s increase was broad-based, with no single sector accounting for more than a quarter of the rise. 

In our 2021 Outlook, we suggested inflation as a dog that may bark the loudest in 2021. Stimulus we’ve mentioned, but aspects like a higher oil prices may cause inflationary pressure on prices going forward. Let’s see what January’s first CPI release reveals. 

US Unemployment Claims 

Unemployment claims unexpectedly below 800,000 at the end of 2020, and January’s unemployment claims have continued this relatively positive trend. The pandemic has not been kind to the job market and looks like it will continue to throw some more punches at the US as the month progresses, but with claims data for week ended January 2nd adding 787,000 new claimants, the levels have held steady for past couple of weeks. 

Despite a vaccination programme beginning to roll out in the US, the restrictions on travel and work in sectors like hospitality, continue to hit jobs. Until the pandemic is reined in, and people can start going out to bars, clubs and, well anywhere requiring hospitality providers, job losses may still keep piling on. 

Major economic data 

Key earnings data