The major US banks will set the stage for a new year fraught with economic fears and a new earnings season when they deliver fourth-quarter results starting next Friday. As recession has increasingly become a question of “when” not “if”, investors will focus on the financial institutions’ outlook and the level of bad loan provisions they set aside as they brace for worsening economic conditions in the US. Consensus estimates show investment banking may continue to suffer before rebounding mid-year, while leaving questions of whether consumer spending can help prop up results as it has shown signs of moderation.
U.S. inflation figures and the start of corporate earnings season will be the main highlights of an otherwise quiet week on the economic calendar. Inflation data for December will help influence the size of the Federal Reserve’s next rate hike, while corporate earnings will give an important insight into the health of the economy amid concerns over a potential slowdown. U.K. GDP, Japanese inflation, and Eurozone data will also be in focus.
The U.S. consumer price index for December is due out on Thursday with economists expecting core inflation to have increased 5.7% from a year earlier. Any sign that price pressures are continuing to ease could not only reinforce the view that the Fed is nearing the end of its most aggressive tightening cycle in decades but may also fuel speculation that rate cuts could come later this year.
The U.K. is to release November GDP figures on Friday against a background of a historic cost-of-living squeeze amid double digit levels of inflation, transport and public sector strikes and a softening housing market as the country faces what is likely to be a lengthy recession.
As price pressures and higher borrowing costs bite, Prime Minister Rishi Sunak has pledged to halve inflation, grow the economy, reduce public debt and cut health service waiting lists.
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