Weekly Update 01/24/2025: Earnings Season Rolls On With Impressive Results So Far
- Oracle & Microsoft are key participants in Trump’s AI initiative “Stargate” unveiled this week
- Alphabet invests another $1 billion in AI developer Anthropic
- Travelers a releases earnings blowing past profit and revenue expectations
- Johnson & Johnson beats earnings expectations on higher sales of cancer drugs and certain medical devices
- CACI International releases earnings solidly beating profit and revenue expectations while raising guidance
- Elevance Health releases earnings beating profit and revenue expectations; raises guidance and increases dividend 4.9%
- Kinder Morgan comes in shy of earnings expectations but the future looks bright in terms of demand
- Nextera shares rise on earnings and plans to restart a nuclear reactor to meet power demand related to AI
Domestic Economic News
The number of Americans on benefit rolls climbed to a more than three-year high, while first-time applications for US unemployment insurance edged higher. Continuing claims, a proxy for people who are already receiving benefits and still can’t find a job, jumped to 1.9 million in the week ended Jan. 11, the highest since November 2021, according to Labor Department data released Thursday. Initial claims increased by 6,000 to 223,000 last week. While initial claims remain at a level that illustrates a healthy labor market, the level of continuing claims suggests more unemployed people are having a tougher time finding a new job. Weekly numbers tend to be volatile, however, particularly at this time of the year. The four-week moving average of new applications, a metric that helps smooth out bumpiness, rose slightly to 213,500. Economists are paying close attention to labor data for the week ended Jan. 18, because it’s the week when surveys used to prepare this month’s employment report were conducted. The period was marked by devastating fires that tore through neighborhoods in Los Angeles. Before adjusting for seasonal factors, initial claims dropped by about 68,000 last week, the most in three years. Four states provided only estimates, including California — which registered the biggest gain in applications — following a surge in the previous week.
Interest Rate Insight and the Fed
The US bond market is ending the first week of Donald Trump’s second presidency pretty much where it began. The yield on US 10-year notes traded around 4.64% on Friday, little changed from a week ago. That’s unusual, putting the Bloomberg Treasury Index on track for its smallest move since September. The lack of a sharp move contrasts with fears ahead of Trump’s presidency for a bond selloff, given scrutiny over the sustainability of US debt as well as potential for trade wars that would add to inflation. However, markets have been reassured — for now — by the president ratcheting down threats on tariffs, saying Thursday he would prefer not to impose such taxes on China. It’s not that there hasn’t been any action in the bond market. Treasury yields fell as low as 4.53% on his first day Monday and then climbed to 4.66% on Thursday. But Trump’s reign began in a week that lacked major economic data, while Federal Reserve policymakers observed a communications blackout ahead of their interest-rate decision next Wednesday. Economists surveyed by Bloomberg are unanimous in expecting Fed Chair Jerome Powell and his colleagues to keep the key benchmark rates steady in a range of 4.25% to 4.5% next week. Looking further ahead, rate swaps now favor two quarter-point reductions by year-end, compared to just one such cut seen last week.
Impactful International News
Saudi Arabia has investments of more than $770 billion in the US and said it expects relations with Washington “will continue to be flourishing” as the kingdom pursues its broad economic overhaul. The comments from Finance Minister Mohammed Al-Jadaan at the World Economic Forum in Davos, Switzerland, come fresh on the heels of news that Saudi Arabia is willing to expand investments and trade with the US by $600 billion over the next four years. “We enjoy a very strong relationship with the US over the years,” Jadaan said in an interview with Bloomberg Television. “We have a relationship that spans over eight decades. Very strategic, based on economy and trade, and will continue.” Relations with Europe and China will also continue to grow as Saudi Arabia presses ahead with its strategy to build new industries and develop the non-oil economy, Jadaan said. While some plans under the so-called Vision 2030 agenda have been recalibrated to consider priorities and risks to the economy, reforms remain on track, he added. Under Saudi Crown Prince Mohammed bin Salman, the kingdom is investing hundreds of billions of dollars on preparations for a post-oil future. The country has started to scale back some projects, Bloomberg has reported, in part because oil prices have been stuck below levels that are needed to balance the country’s budget.
Norway’s central bank primed investors for its first easing move in March after keeping borrowing costs unchanged this month at a 16-year high. Norges Bank officials held the key deposit rate on Thursday at 4.5%, in a decision anticipated by all economists surveyed by Bloomberg. But they also said that they’re now almost ready to start cutting it. “The policy rate will likely be reduced in March,” Governor Ida Wolden Bache said in a statement. “This is as close to expectations as possible,” Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S, said in his reaction to the decision. With no new economic projections or outlook for borrowing costs issued at this month’s so-called interim meeting, the primary focus for investors was on any signals about Norges Bank’s next move. Its decision to persist with high rates to squeeze out inflation reinforces the central bank’s standing as one of the most hawkish monetary authorities among advanced economies, having repeatedly shirked from following peers in rate cutting. The Norwegian krone slipped following the announcement, falling as much as 0.2% to hit the day’s low of 11.77 per euro. The krone has edged up 0.4% since the start of the year, supported by a rise in global oil prices.
The Bank of Japan raised its key policy rate Friday to the highest level since 2008 and took a more bullish view on the strength of inflation, fueling expectations for more rate hikes and supporting the yen. Governor Kazuo Ueda and his fellow board members lifted the overnight call rate by a quarter-percentage point to 0.5% at the end of a two-day meeting, according to a statement from the central bank. A hike was almost fully priced into market expectations ahead of the announcement. The decision to wait until January to hike the rate appeared tied to a need to confirm wage trends, and gauge the initial market reaction to the return of Donald Trump to the White House. The BOJ flagged in its statement the relative stability of current global financial markets as a favorable factor, an indication that it had been monitoring the response to the first days of the new US administration. “We’ll raise rates and adjust policy if our outlook is realized,” Ueda said in his post-decision press conference, repeating his existing stance. At the same time, he didn’t indicate the BOJ had any specific timing in mind for its next move. “We have no preconception on the pace of rate hikes, given it’s dependent on the future state of the economy and prices,” he said. The yen gained as much as 0.8% against the dollar to briefly reach 154.85 in Tokyo as Ueda spoke. Yields on 10-year Japanese government debt rose 2 basis points to reach 1.225%. Japanese stocks, many of which benefit from a weak yen, ended the day down 0.1%. Traders had almost fully priced in a rate change, while about three quarters of economists predicted the move in a Bloomberg survey released last week. That made the pace of further hikes a key focus for this meeting.
The euro area’s private sector grew in January after two months of contraction, surprising analysts as the embattled manufacturing sector showed small signs of improvement. S&P Global’s Composite Purchasing Managers’ Index rose to a five-month high of 50.2 from 49.6 the previous month, edging back above the 50 level that separates expanding from shrinking output. Analysts had estimated a reading of 49.7. The result reflects a slightly stronger showing for manufacturers, though at 46.1 they remain deep in contraction territory. The services industry continues to be the bright spot, with its gauge broadly stable at 51.4. “The kick-off to the new year is mildly encouraging – the private sector is back in cautious growth mode,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said Friday in a statement. “Germany played a major role in improving the euro-zone economy, with the composite index jumping back into expansionary territory.” The euro held gains against the dollar, trading around 0.8% higher at $1.0493. Traders pared bets on European Central Bank interest-rate cuts, pricing 90 basis points of reductions by year-end — down from over 100 basis points earlier this week. Despite the PMI uptick, though, a meaningful revival in the region’s 20-nation economy looks some way off. The prospects for Germany, its biggest member, remain muted following a second straight year of falling output. France, meanwhile, is struggling with tight finances and unstable politics. It’s hoped that a snap election next month may improve Germany’s fortunes, paving the way for more investments in infrastructure, for one. But in the short term, the Bundesbank sees the recent stagnation trend persisting. The country’s PMI reading only just exceeded 50. Germany cut its 2025 forecast for growth in gross domestic product to 0.3% from 1.1%, Handelsblatt reported Friday, citing unidentified government sources. For the following year, it also trimmed its outlook to slightly above 1% from 1.6%, the report said. The ECB should deliver some good news next week with the fifth quarter-point reduction in rates of this cycle.
Company Events
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