Markets started the week on the wrong foot, but a late-day rally helped bring the major indices back to either side of the break-even mark the close.
Investors await new inflation data this week with the Consumer Price Index (CPI) and Producer Price Index (PPI) scheduled to be released Wednesday and Thursday, respectively. Meanwhile, earnings season is set to kick off towards the end of the week with leading banks set to report in addition to Delta Airlines (DAL).
Fighting Inflation
Price pressures have been a central issue for some time now as the Federal Reserve prepares for accelerated rate hikes and tapering of asset purchases to help keep inflation under control. "Transitory" inflation has turned into continued price hikes as monthly data keeps coming in above estimates and far higher than the Federal Reserve's targeted 2% annual rate. CPI data from November showed prices rose 6.8% year-over-year as a combination of supply chain disruptions, shortages, loose monetary policies, and aggressive stimulus packages has led to high inflation.
The CPI report for December is currently expected to show a 0.5% rise following November’s 0.8% increase. Core CPI is estimated to grow 0.5% as well. Meanwhile, analysts expect PPI to increase slightly less at 0.4% coming off November’s 0.5% rise. Economists also estimate core PPI to increase 0.5% in December.
The December numbers are expected to be below November overall but still remain very high at 0.5% with that rate being above or equaling each of the previous three months prior to October. Additionally, core prices (excludes food and energy) are expected to increase at the same rate as the previous two months with 0.5% projecting out to a 6.0% annual rate. With economists expecting core numbers to match overall price rises it seems most are expecting energy and food prices to increase at a significantly lower rate than in October and November.
Besides inflation metrics, traders will be keeping an eye on retail sales and unemployment claims data this week. Retail sales are estimated to stay flat last month after a 0.3% gain in November, however, when excluding autos, sales are expected to rise 0.2%. Meanwhile, initial unemployment claims are projected to dip slightly from 207,000 to 202,000, remaining right near weekly averages before the pandemic hit.
Earnings Season Begins
Outside of economic data, investors will be waiting for the first financial reports of earnings season as many of the world’s largest banks are set to release performance results and guidance late this week.
JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and BlackRock (BLK) are all set to report on Friday morning to kick off earnings season. BlackRock is expected to report earnings-per-share (EPS) roughly equal to its year-ago quarter with an estimated 10.08 while Citigroup and JPMorgan are both expected to report a lower EPS than the previous year with estimates at 1.66 and 3.06 respectively. Wells Fargo is the only bank analysts project to outperform last year’s quarter with an expected EPS of 0.99 versus 0.64 in its year-ago quarter. Meanwhile, revenue for all are expected to be slightly higher than the year-ago quarter.
Outside of financial services, two big names are set to report earnings ahead of the open on Thursday, Delta and Taiwan Semi (TSM). Delta Airlines is expected to report its second consecutive positive quarter since taking a massive hit from the pandemic. Economists expect the airliner to reach an EPS of 0.12 versus its year-ago performance of -2.53. Meanwhile, one of the world’s leading semiconductor manufacturers, Taiwan Semiconductor, is expected to reach EPS of 6.21 compared to 5.51 from a year ago.
The performance of banks and others should give some insight into how firms performed this past quarter and what investors should be keeping in mind going forward in 2022.
Economic Events this Week
Wednesday
- 8:30 a.m.- CPI and Core CPI
- 10:30 a.m.- EIA Crude Oil Inventories
Thursday
- 8:30 a.m. - Initial and Continuing Claims
- 8:30 a.m. - PPI and Core PPI
Friday
- 10:00 a.m. - Preliminary University of Michigan Consumer Sentiment report
Earnings Reports This Week
Monday:
After the bell:
ACCD
Tuesday:
Before the bell:
ACI, SNX
Wednesday:
Before the bell:
JEF, SJR
After the bell:
KBH
Thursday:
Before the bell:
DAL, TSM
After the bell:
WAFD
Friday:
Before the bell:
JPM, WFC, C, BLK, FRC
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