Strong earnings season despite COVID headwinds

A fairly undramatic week is coming to an end where focus continued to be on COVID vaccine and treatment news on top of US fiscal stimulus and the corporate earnings season. Bond yield fell back a bit after US core inflation for January came out weaker than expected at 1.4% y/y down from 1.6% y/y in December while US stock markets lost a bit of steam after hitting a new high on Wednesday. EUR/USD corrected a bit higher again following the recent set back.

The earnings season is running full speed these days and although we still need to see manycompanies, reporting we can concludethis will be one of the best earning seasons on record. US is further ahead in reporting and here we see the earnings surprise factor of 17.5% and revenues surprise factor of 3.2%. Earnings estimates for 2021 have also been lifted substantially with almost twice as many positive revisions compared to negative revisions. Our long term view on equities remains positive on the back of a robust outlook for the global economy and very low returns on other asset classes.

When it comes to COVID vaccines and treatment, the news have generally been positive. On the treatment front Israeli researchers foundthat 29 out of 30 seriously ill COVID patients showed significant improvement within 2-3 days after being treated with a relatively unknown cancer drug, see Cityam. In addition, a study by researchers at University of Oxford showed that a well known Astmatreatment called Pulmicort by AstraZeneca reduced the need for urgent care or hospitalisation by 90%, seeReuters. However, on a less positive note a study showed that the AstraZeneca had much reduced effect on the South Africanvariant at least when it comes to mild or moderate cases. However, WHO stated the study was inconclusive on effects on severe cases and it was “plausible” the vaccine would still be efficient against these.

The US House is pushing to pass a USD1.9 trn fiscal relief bill within two weeks after Democrats votedthrough a resolution that allows them to approve the package with no Republican votes. President Joe Biden still aims for a bill with Republican support but he has paved the way for Democrats passing it on their own through the Budget Reconciliation Bill (read more here about the reconciliation process).

Focus in the coming week will be on Flash PMIs for February for US and the euro zone, which could very well weaken with the signs of a slowdown in the global manufacturing cycle in Chinese data and parts of the service sector taking a hit from lockdowns. We are in a short term vacuum in the global economy before growth is set to recover once the vaccines have been fully rolled out in US and Europe over the summer. We may see a rebound in US retail sales for January following the pay out of the second round of stimulus checks. Minutes from the recent FOMC meeting will be scrutinized for a discussion on taperingof asset purchases while focus in ECB minutes will be on any exchange of views regarding rate cuts and the strength of the euro at the time of the meeting. There will be no data out of China as the Chinese New Year holiday started yesterday and continues in the coming week.

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