Inflation and Rate Worries Weigh as Earnings Season Begins

Weekly Wrap Content for the week of 2:

1. Week 2 major indexes performance;

2. Week 2 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

U.S

Stocks recorded their 2^nd consecutive weekly loss to start the year- and the technology-heavy Nasdaq Composite its third – as the unofficial start of earnings season began. Financials shares came under pressure on Friday as JPMorgan Chase and Citigroup, typically among the first major companies to release results, reported lower profits in the fourth quarter, Wells Fargo on the other hand, jumped up new high since Jan 2018. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Stocks started the week on a down note on news that more Wall Street analysts were expecting the Federal Reserve to hike rates four times in 2022—a consensus implied in futures markets. 

2.    Overall consumer prices reported risen to 7% yoy, the largest gain on a 12-month basis since June 1982. Core inflation excluding food and energy rose 5.5%, the most since February 1991. Core producer prices, reported Thursday, rose 8.3%, the most in records going back to 2011. 

3.    The week’s biggest surprise, arguably, was a 1.9% drop in retail sales in December—a decline that would be magnified by excluding the volatile auto market and adjusting for inflation. 

4.    Weekly jobless claims rose unexpectedly to 230,000, the highest number since mid-November. The University of Michigan’s index of consumer sentiment ticked down to a new pandemic-era low of 73.2, with many surveyed citing inflation worries. 

5.    After climbing above 1.80% during intraday trading Monday, the yield on the benchmark 10-year U.S. Treasury note slid to 1.74% by Friday morning, as longer-term U.S. government debt rallied amid wavering risk sentiment.

SPX sectors in play

Among the 11 SPX major sectors, Financials(XLF) shares lagged, along with Utilities(XLU), real estate(XLRE), and Consumer Discretionery(XLY).  Energy(XLE) shares outperformed as oil prices continued their climb back to late-October highs. Refer to below sector indexes weekly performance table.

Technically, all three major indexes uptrend was well intact.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

The Shanghai Composite Index (SSE weekly chart) fell 1.6% for the week, weighed by headlines about refinancing difficulties in the country’s troubled property sector.

China’s largest banks have grown more selective about funding real estate projects by local government financing vehicles, while several developers scrambled to obtain creditors’ consent for maturity extensions and exchange offers, Bloomberg reported. Other developers have intensified fundraising campaigns as traditional financing routes like presales have dried up.

A severe and prolonged downturn in China’s real estate sector would have significant economy-wide reverberations, the World Bank warned in its Global Economic Prospects report.

On the pandemic front, China suspended dozens of international flights and issued more restrictions in response to the global surge in omicron cases. Hong Kong, which had reported no local infections for months, reimposed some social and travel restrictions after a string of positive cases, dealing a setback to the city’s reopening hopes. Shanghai curbed tourist activity as it rushed to head off local infections as imported cases rose.

In Hong Kong, the benchmark Hang Seng Index(.HSI weekly chart) jumped the most in 14 months to end up 3.8%. The Hang Seng Tech index rebounded 4.8% to its four-week high, after hit fresh new low previous week.

Singapore

STI index(STI weekly chart) rallied for 2^nd week, pushed through its 2021 high of 3273.54 and hit two-year new high since Jan 2020. The index displayed remarkable resilience and defying losses across most major bourses, mainly driven by banking and financing stocks.