Lithium Imports To China And USA Are Surging This Year| FXMAG.COM

Summary: WATCH video or read text. US inflation volatility risk picks up amid uncertain of the new methodology. Fed speakers and retail sales also key. Japanese yen may have trouble finding direction. UK data is key for the next BOE meeting. Oil markets look wobbly with Russia’s cut, monthly oil reports from OPEC and EIA due. Eyes on lithium companies with Ford and CATL to build a mega battery plant, while Albemarle reports results. 60 S&P500 companies report quarterly earnings this week, across most sectors, while some of the ASX200’s biggest companies declare full year results.

US inflation volatility risks with uncertain impact of new methodology, Fed speakers and retail sales also key

While investors firmly believe inflation is on a downward trajectory, month-on-month variations still remain on watch. More importantly, this month brings a change in methodology, which adds further uncertainty to the release. If we take the last few month’s revisions for core CPI into account based on the new methodology, there is reason to believe that the new weights could mean an upward push to inflation. Average core CPI for the last three months of 2022 has gone up from 3.1% to 4.3% with the new seasonal factors released by the BLS. Moreover, milder weather in January compared to December, as well as an upward swing in jobs, could mean demand pressures picked up further traction. Bloomberg consensus expects headline CPI to soften to 6.2% YoY from 6.5% YoY in December, while the MoM picks up to 0.5% from a revised +0.1% previously.

Retail sales is also expected to pick up momentum again in January amid sustained consumer strength. This will be an important input for market watchers that continue to weigh up the recession vs. soft landing scenarios. Several Fed officials are due to make appearances during the week and will be key to watch after central bank rhetoric took a hawkish shift again last week. New York Fed President John Williams, St. Louis Fed head James Bullard, Philadelphia Fed President Patrick Harker and Cleveland Fed head Loretta Mester will be on the wires this week.

Japanese yen may have trouble finding direction this week

Japan PM Kishida in a shocking announcement on Friday nominated a dark horse candidate Kazuo Ueda as the next governor for the Bank of Japan after Kuroda steps down in April. BOJ executive director (in charge of monetary policy) Shinichi Uchida and former Financial Services Agency commissioner Ryozo Himino were also nominated as deputy governors. Ueda is an academic and a former member of the BOJ policy board, and digging his prior speeches has revealed that he has more of a neutral stance, compared to the dovish Amamiya who was reportedly offered the role but rejected it. In July 2022, Ueda wrote an article for the Nikkei entitled "Japan, Avoid Hasty Tightening", but in August 2022, he also questioned if the Fed was too late to raise rates. His appointment suggests we could see some tweaks in BOJ’s ultra-easy monetary policy, but expecting an outright removal of yield curve control policy appears aggressive now.

Other reasons to expect potential volatility in the Japanese yen include the surge in global yields again and US CPI due in the week, along with a sharp increase in oil prices after Russia’s decision to announce a cut in production by a half million barrels per day.

UK data key for next Bank of England meeting

The Bank of England hinted at the February meeting that the 50bps rate hike may have been their last. This week’s inflation, jobs and retail sales data will however be key to determine if another hike may be seen in March. Labor data is out on Tuesday, and expected to continue to show a tight labor market. January CPI comes out on Wednesday, and it is expected to remain in double digits. Bloomberg consensus expects headline CPI to only cool marginally to 10.3% YoY from 10.5% YoY in December. Finally, retail sales data on Friday is expected to show that consumer spending remains under pressure. But with the GDP data out last week showing a likely delay in the start of recession, the BOE may have room to look past the weakening economic momentum for now and keep its focus on price pressures. However, market pricing already suggests a near certain case for another 25bps rate hike in March, so scope for GBP appreciation remains minimal.

Oil market wobbly with Russia’s cut, monthly oil reports from OPEC and EIA due

In its latest move to use energy as a weapon in the war, Russia announced a unilateral cut in its March crude oil output by 500,000 barrels a day on Friday, apparently without consulting with its OPEC+ partners first. Since the introduction of EU and G7 sanctions on crude oil from December and fuel products from early February, Russia has increasingly been forced to cut its selling price, given its client base continues to dwindle. And now Russia plans to limit its discount on Urals oil to Brent at $34 a barrel in April, $31 in May, $28 in June and $25 in July. That said, some oil supply returned to the market with Tanker loadings of Azeri crude docking at Turkey's Ceyhan terminal. All in all, if oil prices continue to move higher, OPEC may need to fill the gap by ramping up production, especially in light of the expected pickup in Chinese demand this year. So far, OPEC+ are signalling that they won’t boost production to offset Russia’s supply shortages. Monthly reports from EIA and OPEC are due in the week ahead, and will likely keep the energy markets bumpy. As mentioned in the Quarterly Outlook, we expect Brent Oil to remain around the $80 levels this quarter and move to the $90s in the second quarter, and beyond.

Lithium companies on watch with the battery market heating up. Ford and CATL building a battery plant

Lithium imports to China and USA are surging this year, ahead of car makers ramping up production with some of the IEA countries planning to end the sale of fuel engines in seven years. The world's biggest lithium company Albemarle reports earnings this week - and will be a lithium proxy to watch - for what we may expect from lithium companies this year. In other news, Ford and CATL are reportedly planning to build a $3.5 billion mega battery plant in Michigan, across 1,900 acres - and employ 2,500 workers. Meaning, they will need to buy industrial metals to produce batteries. This narrative illustrates demand is likely to continue to grow, while supply remains limited. This supports Saxo’s bullish view on battery metals; copper, aluminium and lithium. Click the link, for a look at stocks to watch this week across these sectors. Alternatively refer to Saxo's Equity baskets under Research, Stocks.

Big stakes this week for earnings with 60 S&P500 companies reporting and ASX reporting season ramping up

So far, this quarterly US earnings season, 346 S&P500 (US500.I) companies reported results and average earnings growth for the quarter is down 2.3%. Although quarterly earnings growth is in the red again, it’s slightly better than expected. That’s one of the major themes again this US earnings season - margin/profit squeezes are continuing, while the most earnings growth is continuing to come from the Energy sector - which is benefiting from rising free cash flow growth. Meanwhile, for the first time since covid, we’ve seen the biggest earnings declines in Materials – with mining companies reporting falling earnings amid production slipping amid weather issues. That said, Australian commodity companies are reporting that production has started to turn around in the industry, with mining employment improving. For companies to watch this week who are reporting quarterly or full year earnings - see our calendar below. Highlights include results from Glencore (GLEN:xlon) that will provide insights about global commodity markets. Sales trends and management’s comments on the business outlook from Coco-Cola (KO:xnys), Kraft Heinz (KNC:xnas) will inform investors about the state of consumers and margin trends in consumer staples.

Australian equites (ASXSP200.I) could wobble, if employment data is hotter than expected and commodities pair back with a higher US dollar

This week investors and traders will be focused firstly – on Australian employment data out for January, due on Thursday, expected to show employment improved, with 20,000 jobs gained last month, which will market a recovery from the prior drop - while the unemployment rate is expected to remain unchanged at 3.5%. Also importantly, consider the Aussie share market may be potentially vulnerable of pairing back - as the Australian 10 year bond yield has moved up aggressively to 3.81%- its highest level since January. This is because the market is still playing defensive - following hawkish RBA comments and the RBA increasing its inflationary forecast. Plus the market expects the RBA to make ~78.6bps of hikes before pausing in August. Meaning, unprofitable tech companies and businesses that don’t pay a dividend yield are vulnerable here. From a technical perspective, it also looks like the ASX200 is running out of steam. Click here for our technical analyst's views