Week Ahead: Big banks kick of US earnings blitz

US earnings season kicks off this week. The large caps will be sharing their earnings reports for Q2 2021. This throws up exciting trading opportunities for investors, as ever, but this quarter’s may be one of the best seasons yet from a corporate perspective. 

Analyst sentiment suggests a bumper quarter is on the way for the large caps. FactSet forecasts suggest a 61.9% growth rate for S&P 500 firms. That would be the highest year-on-year growth rate reported by the index since 2009. 

Big banks dominate earning season’s opening salvos. JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup are amongst those reporting in the first week. 

Earnings season takes on renewed importance this quarter. The market will be using it to gauge which companies are poised to power out of the pandemic economy toward something like normal operating procedures – and which have struggled. 

We’ve put together a US earnings season calendar detailing the large caps sharing earnings reports this quarter. Check it out to see which companies are reporting to plot your trades for the coming season. 

Away from earnings and turning to data, this week sees the release of June’s US consumer price index reading. 

Headline consumer prices rose 5% year-on-year in May – the fastest rate since August 2008. This was also higher than Wall Street expectations. Core inflation, a measure that doesn’t include food or energy prices, was up 3.8%. That was the sharpest rise for nearly three decades. 

May’s data, compiled by the Bureau of Labour Statistics, instigated a debate around whether the Fed should let the economy run hot. Inflation is one of the Fed’s key metrics, so similar readings in June may prompt a policy change or a rate hike in order to cool the hot post-lockdown economy. 

Fitch suggests CPI will continue to spike well into 2022. The ratings agency believes supply line issues won’t alleviate any time soon, thus will continue to drive prices of consumer goods upward.  

Fitch’s forecasts call for an overall 4.5% yearly rise in core CPI inflation by year’s end 2021, with non-core coming in at 4.1%. Core inflation would then drop to 2.5% by mid-2022. 

We’ll also see the latest US retail sales data this week. The markets will be looking to see if the 1.3% drop in overall sales and 0.7% drop in core retail sales registered in May was a blip, or whether the trend will have continued into June. 

Despite these small monthly decreases, retail sales are up 28.1% on a yearly basis.  

A part explanation for the dip was a trend of consumers turning away from buying goods and finished products and instead turning to experiences. With freedom of movement returning to near normalcy in the United States, spenders are preferring to go out, plan trips, and spend on services, rather than dabbling in some retail therapy. 

Another reason was a 3.4% drop in receipts at car dealerships. The global semiconductor shortage is impacting delivery of new vehicles; thus, sales have started to stall. 

Interestingly, April’s retail sales were revised up at May’s printing. Instead of staying static as was first thought, they actually increased 0.8% month-on-month. 

The Bank of Canada’s newest rate statement is also due. Governor Tiff Macklem confirmed in June that the overnight rate was holding steady at 0.25%, and no changes to the rate were coming any time soon. 

Macklem also committed the Bank to CAD$3bn in weekly Canadian government bond purchases but reiterated that the pace of these would subside as economic recovery progresses. 

Canada was one of the first major economies to begin scaling back its bond purchases in April. Despite this, the economy retracted in April and May, and Q1 GDP growth of 5.6% did not meet expectation, mainly due to winter lockdowns. 

However, the Bank of Canada’s economists are confident recovery will pick up the pace in the coming months. High commodity prices and growth in foreign demand are expected to act as economic tailwinds going forward. 

A tapering of bond purchases is expected with July’s statement on the 14th.  

Major economic data 

Key US earnings data