6 February 2023

Weekly Outlook - Corporate Earnings Take Centre Stage

Technical Analysis

After the major central banks raised interest rates as expected, data releases are slower this week, giving the market time to digest the latest policy changes during the earnings season, where companies are not really wowing investors.

Top 3 Events for the Week Ahead

  • RBA expected to hike overnight Monday

  • UK economy to (barely) expand on Friday

  • Disney could rock the markets on Wednesday

RBA Expected to Respond to Inflation

After inflation came in with a considerable surprise to the upside in January, the consensus shifted towards the RBA posting another 25bps rate hike. Posterior to the CPI, there were mounting reasons for a pause as job numbers turned negative. The RBA did leave the door for another hike open at the last meeting, with the focus now likely on what the bank signals for the next meeting.

Euro versus the Aussie should be watched closely as its price action resembles a head-and-shoulders pattern. The right shoulder has either completed at 1.5752 or is expected to extend as long as the bulls defend the neckline at 1.5263. Losing the neckline might open the door to the measured move low at 1.45 in the longer term, with the interim 50% and 61.8% Fibos at 1.5128 and 1.4924 as short-term supports. The current peak by the left shoulder level could be reached if the RBA opts for a more dovish narrative. In this case, short-term resistance lies at 1.56 and 1.57.

Tradingview Chart: EURAUD

UK GDP to Avert Recession, For Now

Despite both the BOE and the UK Treasury acknowledging the UK is in a recession, the GDP forecast indicates the country will technically avoid a recession, growing 0.1% on a quarterly basis. This compares to a -0.3% contraction last time around, aligning with expectations. But the annual GDP rate is expected to come in at negative 0.2%, compared to the 1.9% growth reported three months ago. A better-than-anticipated result could give the BOE more room to keep fighting double-digit inflation, but a disappointment could raise bets that the BOE won't hike as much.

The final leg down on GBP/CHF could offer at least a short-term bounce, if not a full-blown reversal towards 1.16 in the longer term. This would coincide with the completion of a potential symmetrical triangle pattern currently under formation. Triangles typically complete in five waves, with invalidation at the last opposite swing; being the case for 1.11. Sliding lower could expose 1.1050 and 1.09 if momentum accelerates due to growth contraction. On the flip side, 1.1267 is the first stop for bulls should the data beat expectations, with the peak at 1.1437 a medium-term ceiling.

Tradingview Chart: GBPCHF

DISNEY Expected to Turn Over a New Leaf

Bob Iger is back! This will be the first earnings report since the change in CEO, so investors are keen to see what changes he might implement to get the company's stock price back on track. Iger oversaw Disney's acquisition of several major properties that were extremely profitable to the company, including Star Wars and the Marvel franchise. But both have had dwindling returns of late, and the mainstay of the company - the parks - have also seen falling demand as consumers face higher inflation. The focus will likely be on the streaming sector after the perception that the former CEO bet too much on an increasingly saturated market. Disney is expected to report earnings of $0.79 on $23.4B in sales.

The share price of Disney has formed an ending wedge pattern down at $84, suggesting the bottom might be in with the arrival of Bob. Beating estimates could see the stock advance to the $125-$130 range, where activity remains elevated. If the firm misses earnings and the $100 round support succumbs to pressure, the door to a fresh low might reopen. However, that would require a 180-degree shift from the recent leadership-led optimism.

Tradingview Chart: DISNEY

Top Events in Review

  • Fed hiked by 25bps, but Powell's tone afterwards conveyed that it was reaching the end of the hiking cycle.

  • BOE hiked by 50bps as expected, but the shifting vote count was seen as a sign of hiking exhaustion, pushing the pound lower.

  • The ECB also raised rates by 50bps and promised to keep raising at a similar pace at the next meeting, affirming its intention to start QT in March.

Major Calendar Events for Feb 06-10 (GMT)

source: investing.com

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