This week ahead || Jan 15th - Jan 19th 2024
Here's your news for the week ahead.
With carmakers in a ‘state of shock’ over Tesla-beating BYD’s prices, EU investigators will visit China’s EV giants as part of an anti-subsidy probe
The European Commission is set to send investigators to Chinese electric vehicle (EV) makers, including BYD, Geely, and SAIC, to probe whether they benefit from unfair advantages due to government subsidies. The investigation aims to determine if the Chinese EVs' low prices are due to state subsidies, which could be distorting the European market. BYD recently surpassed Tesla in global EV sales, and the investigation is part of the EU's efforts to address concerns about the impact of Chinese EVs on the European automotive industry. The EU anti-subsidy investigation was announced in September and is scheduled to run for 13 months.
Top 5 things to watch in markets in the week ahead
This week, financial markets will closely watch U.S. retail sales data for insights into consumer spending trends amid rising interest rates. Major banks, including Goldman Sachs and Charles Schwab, are set to report earnings, shedding light on the financial sector's performance. The World Economic Forum in Davos will bring together global leaders to discuss economic challenges and rebuilding trust. China's release of full-year GDP figures will offer a snapshot of its economic growth in 2023. In the UK, inflation data and employment figures will be closely scrutinized, particularly in light of the Bank of England's commitment to maintaining higher interest rates. Geopolitical tensions in the Middle East are expected to keep oil prices volatile, with recent strikes impacting shipping routes in the Red Sea. These events collectively shape market sentiment and guide investment strategies in the week ahead.
Red Sea tensions put focus on struggling U.S. energy stocks
The U.S. energy sector has lagged behind other segments of the stock market, declining nearly 3% since late October while the S&P 500 rose by 16%. This underperformance is attributed to a significant downturn in oil prices, which fell over 20% since late September to around $73 a barrel. Despite the broader market rally, the energy sector struggled in 2023, falling 4.8%, the second-largest drop among S&P 500 sectors. Investors are now eyeing upcoming earnings reports and rising geopolitical tensions as potential catalysts for a rebound in the energy sector. Analysts at the Wells Fargo Investment Institute upgraded their rating on the energy sector, citing expectations of a bottoming in oil prices and a potential rise in Middle East tensions. Earnings reports from key energy companies, including Schlumberger, Baker Hughes, and Marathon Petroleum, will be closely monitored for further insights into the sector's prospects. Despite the challenges, some investors see historically cheap valuations, improving earnings trends, and the potential for the sector to act as a hedge amid geopolitical uncertainties as factors supporting energy shares.
ECB rethinks rate cuts amid positive economic indicators
The European Central Bank (ECB) is currently reassessing its stance on interest rate policy, signaling a potential departure from the previously planned aggressive rate cuts for 2024. The reconsideration is prompted by more optimistic economic trends than initially anticipated. Key ECB officials, including President Christine Lagarde and Chief Economist Philip Lane, are emphasizing the need to wait for more comprehensive economic data before deciding on rate normalization. The ECB is particularly focused on upcoming wage statistics from Eurostat, especially in the service sector, to gauge inflation and wage growth trends. The central bank is adopting a cautious approach to avoid premature interest rate reductions that could fuel inflation. This measured stance reflects the ECB's commitment to align policy changes with the evolving economic landscape.
