The Australian share market is poised for a positive open this morning, with energy stocks ending last week firmly higher. US earnings ramp up thanks to Bank of America and Netflix, China’s GDP data could sway iron ore producers, Block replaces Afterpay on the ASX, and BHP prepares a historic vote on the unification of its dual-listed shares.


Economic calendar and news

The US economic calendar will play second-fiddle this week to other events, including earnings season, as well as the latest sentiment towards the interest rate outlook. However, among the data still trickling through, building permits and housing starts kick-start the agenda, which will then be followed by jobless claims, home sales, and crude oil holdings.

In terms of the Australian news cycle, consumer confidence numbers will be released on Wednesday, with forecasts suggesting the January reading may point to another fall in sentiment as Omicron spreads rapidly. 

What may prove to be a more reliable gauge, however, is the employment data set to be published on Thursday. After the large improvement recorded last month, expectations point to a more subdued result this time around, with anywhere between 30,000 to 60,000 jobs likely to have been added to the Australian economy in December. 

Combined with an estimated rise in the participation rate to 66.2%, economists believe the unemployment rate will remain steady at 4.6%, or potentially improve a fraction to 4.5%.

Elsewhere, China GDP data for the fourth-quarter of 2021 is on the way, and the consensus figures point to an expected drop in growth from 4.9% in the prior corresponding period to 3.6% this time around. With that said, it is expected activity picked up from the third-quarter of last year, with growth of 1.2% flagged by observers.



Stocks on watch

Earnings season is expected to draw an increasing focus in the week ahead. While technology stocks have been outperformers over recent reporting periods, attention this time around is focusing on many stocks tied to the sensitivity of the economy. In that respect, investors will get their first glimpse as to whether value and cyclical stocks might be poised to gain traction ahead of interest rate hikes, something a number of insiders have suggested may be driving the rotation out of tech shares in recent weeks.

Cyclical sectors such as energy, materials, consumer discretionary and industrials are expected to see a bumper period, with some estimates putting earnings growth into the high double-digit range, above 30% or even 50%. In contrast, the broader S&P technology sector is forecast to see just 11% earnings growth after prior quarters set the benchmark very high for a number of names from this corner of the market.

Three of the major banks kicked things off last week, with Wells Fargo (NYSE: WFC), Citigroup (NYSE: C) and JPMorgan (NYSE: JPM) all beating earnings estimates. However, looking in the rear-view mirror proved insufficient for investors, with JPMorgan sold down sharply as its outlook concerned onlookers, particularly comments around wage inflation. 

Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) will make up the rest of the high-profile banks set to report, while consumer goods conglomerate Procter & Gamble (NYSE: PG) may offer a glimpse into how larger companies are faring in managing the supply chain. Netflix (NASDAQ: NFLX) is another household name up for reporting, as is United Airlines (NASDAQ: UAL).

Energy shares will be on watch over the following trading sessions after a strong performance from this segment last week. In the US, the energy sector jumped more than 5% last week, and it was one of only two sectors to see a positive weekly gain. 

Occidental Petroleum (NYSE: OXY) was up 6.9%, BP (NYSE: BP) shares popped 8% higher, while closer to home Woodside Petroleum (ASX: WPL) leapt 9.3% to lead the ASX-listed energy players. Crude oil output from OPEC+ and the US has fallen behind production targets, going some way towards driving oil prices to a near seven-year high, despite expectations China will release crude reserves in time for the Lunar New Year holiday. Santos (ASX: STO) will release its quarterly report on Thursday this week.

Following its acquisition by US payments giant Block (NYSE: SQ), Afterpay (ASX: APT) is set to be replaced on the local market by a dual-listed CDI for the parent company. That means shares in APT will cease trading as at the end of trading on Wednesday, with Block shares trading under the ASX ticker ‘SQ2’ from Thursday on a deferred settlement basis.

Iron ore stocks have been enjoying a positive run lately, with the likes of Fortescue Metals Group (ASX: FMG) back at levels last seen in mid-August. Iron ore prices have been buoyed by supply issues out of Brazil as rain plays havoc with production. 

China’s GDP data may have an influence on names from this sector, as will quarterly production reports from Rio Tinto (ASX: RIO), due Tuesday, and BHP (ASX: BHP), due Wednesday. BHP is also set to hold a unification vote on Thursday regarding the consolidation of its Australian and UK listing structure. If unification is approved, this is tipped to see BHP represent as much as 10% of the ASX 200 index when the proposed change takes place on January 31, versus 6.2% at the moment.


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