Stocks are near record highs, and what happens next for markets will be determined by a busy week ahead. Investors will turn their attention to the start of earnings season with big banks gearing up to report results, the signing of the “phase one” trade deal and a slew of economic data.
China announced last week that Vice Premier Liu He will be visiting Washington this week to sign the “phase one” trade deal on Wednesday. For more than a year, the ongoing trade war between the U.S. and China weighed heavily on both investor and business sentiment, and even as stocks soared to record highs, it was a bumpy ride along the way as the U.S. and China went head-to-head in a tariff battle.
While investors cheered the “phase one” deal reached by the two nations, many are skeptical about whether a potential “phase two” will come quickly or easily. Allianz Chief Economic Adviser Mohamed El-Erian warned that a “phase two” deal will likely be challenging.
“In terms of phase two, phase two is a lot more complicated than phase one. Phase one for me is a ceasefire. It's a truce. It doesn't deal with the really complex issues,” El-Erian said Thursday on Yahoo Finance’s On The Move. “I'm not a buyer that phase one automatically means a solid foundation, a solid stepping stone to phase two. I think phase two is going to be really hard to achieve.”
Additionally on Wednesday, the Federal Reserve will be releasing its Beige Book. “The Beige Book prepared for the January FOMC meeting will likely indicate a modest pace of economic expansion and inflation. We will look for additional anecdotal evidence from businesses of headwinds faced by the industrial sector, particularly given rising evidence of the industrial slowdown bottoming,” Nomura economist Lewis Alexander wrote in a note to clients Jan. 10.
“Since the last Beige Book, while there have been some positive developments around US-China trade, some surveys indicated that businesses continued to express concerns over trade policy uncertainty and input cost pressures from tariffs that are currently in place. It will be important to assess if Beige Book respondents have materially revised up their near-term business outlook since the announcement. In addition, we will pay attention to any anecdotal information on effects from Boeing’s production halt and the normalization of GM’s production,” Alexander added.
Meanwhile, investors will get another read on the health of the U.S. consumer on Thursday when the Commerce Department releases the final retail sales report for 2019. Economist surveyed by Bloomberg expect headline retail sales to have risen 0.3% during December, up from 0.2% in November. Core retail sales, excluding volatile auto and gas, are expected to accelerate 0.4% in December.
“We expect solid retail sales growth in December after two months of lackluster performance,” Credit Suisse said in a note Jan. 9. “Retail sales slowed markedly in the past two months after remarkable strength earlier last year. A pick-up in December should help support Q4 real consumption growth at a decent level of 2.3% (QoQ annualized). Part of the expected improvement in retail sales should come from non-store retailers and restaurant spending, two of the biggest discretionary categories.”
Earnings season officially begins this week with big banks kicking things off. Citigroup, J.P.Morgan and Wells Fargo will report Tuesday, while Bank of America and Goldman Sachs report Wednesday. Morgan Stanley will round things out on Thursday.
Economic calendar
Monday: Monthly Budget Statement, December ($0.0 billion expected, -$208.8 billion in November)
Tuesday: NFIB Small Business Optimism, December (104.8 expected, 104.7 in November); CPI month-on-month, December (0.2% expected, 0.3% in November); CPI excluding Food & Energy month-on-month, December (0.2% expected, 0.2% in November); CPI year-on-year, December (2.4% expected, 2.1% in November); CPI excluding Food & Energy year-on-year, December (2.3% expected, 2.3% in November)
Wednesday: MBA Mortgage Applications, week ended Jan. 10 (13.5% prior); PPI Final Demand month-on-month, December (0.2% expected, 0.0% in November); PPI excluding Food & Energy month-on-month, December (0.2% expected, -0.2% in November); PPI Final Demand year-on-year, December (1.3% expected, 1.1% in November); PPI excluding Food & Energy year-on-year, December (1.3% expected, 1.3% in November); Empire Manufacturing, January (4.0 expected, 3.5 in December)
Thursday: Import Price Index month-on-month, December (0.4% expected, 0.2% in November); Retail Sales Advance month-on-month, December (0.3% expected, 0.2% in November); Retail Sales excluding Auto & Gas, December (0.4% expected, 0.0% in November); Retail sales excluding Autos month-on-month, December (0.5% expected, 0.1% in November); Philadelphia Fed Business Outlook, January (3.8 expected, 2.4 in November revised); Initial Jobless Claims, week ended Jan. 11 (220,000 expected, 214,000 prior); Continuing Claims, week ended Jan. 4 (1.803 million prior); Bloomberg Consumer Comfort, week ended Jan. 12 (65.1 prior); Net Long-term TIC Flows, November (-$48.3 billion in October)
Friday: Building Permits, December (1.467 million expected, 1.482 million in November); Housing Starts, December (1.380 million expected, 1.365 million in November); Capacity Utilization, December (77.2% expected, 77.3% in November); Industrial Production month-on-month, December (0.0% expected, 1.1% in November); University of Michigan Sentiment, January preliminary (99.2 expected, 99.3 prior)
Earnings calendar
Monday: N/A
Tuesday: Citigroup (C), Delta Air Lines (DAL), J.P.Morgan (JPM), Wells Fargo (WFC) before market open
Wednesday: Bank of America (BAC), BlackRock (BLK), Goldman Sachs (GS), PNC (PNC), UnitedHealth (UNH) before market open; Alcoa (AA) after market close
Thursday: Charles Schwab (SCHW), Morgan Stanley (MS) before market open; CSX (CSX) after market close
Friday: Kansas City Southern (KSU), JB Hunt (JBHT), Schlumberger (SLB), Fastenal (FAST), State Street (STT) before market open
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Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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