U.S. earnings season starts strong

Transcript

Hi, welcome to the market weekend review for the week ending 16th of January 2026. My name is Alex Kusley. I'm a portfolio manager based out of Sydney. And it was a pretty busy week this week. We had corporate earnings out of the United States, some economic data. We had credit numbers out of China and some political developments in Japan. So, if we get into it, starting with the US. So earning season for Q4 has kicked off with the big banks reporting and generally it was a sign of um stronger than expected earnings. So most of the banks beat on earnings. Quite a few beat on revenue expectations. It wasn't all positive. There were some indications of more capex coming through than the market had anticipated and the market reacted to that a little bit. But broadly, if you think about what the US economy looks like, banks are saying that the the um the environment is still quite healthy. We also had Delta, the airline report, and they kind of reaffirmed the K-shaped economy idea where they've had a very strong start to 2026 in terms of bookings, and it's really been driven by business class and the premium class. Uh so the higher higher income consumers are still driving quite a bit of the spending. On the economic data front, we got the inflation numbers where we sort of saw a bit of downside surprise to core inflation. Don't think it's a huge game changer to the Fed. We still think the Fed are likely to stay on hold. Maybe one rate cut through the year given our backdrop that the economy we think is uh in is beginning to reacelerate uh on the support from cap um fiscal stimulus that consumer spending that we've talked about and also the capital expenditure profile continuing for artificial intelligence. the uh on the labor market we have the jobless claims the weekly jobless claims and that's continued a pretty healthy down move uh so less people filing for insure unemployment insurance each week uh which is quite encouraging and kind of continues this low higher low five thematic that we've seen through 2025 which we do think will break up to the upside in terms of more hirings uh on that reaceleration if we move across to China had two pieces of data out um as a backdrop we're still in this low or a fairly soft growth environment for China uh where export growth is still the the one of the bigger drivers and that continued with with the trade data. So exports were stronger than expected. Um and then on the credit side we get a better insight into how households and businesses are feeling about the economy where we've been in an environment of pretty soft credit demand and that continued. So given the housing market is still quite soft and the consumer is cautious, we aren't seeing much demand from consumers, corporates are being quite cautious and local government bond issuance has not really picked up yet. That will pick up through the year uh given the issuance quotas that get given. Um but yeah, we haven't seen much of that coming through to date. Finally, in Japan, uh where we had some political developments come through. So, Takichi, the prime minister of Japan, uh looks like it'll call a snap election likely to be done around February 8th is the kind of best guess right now. Uh and we saw quite a bit of movement in markets on the back of that. So, starting with equity markets, the topics, which is the main Japanese indicy was up 5% as of recording this on Thursday close. Um and that's really been on the view that Takiichi's two kind of um campaigns or or campaign fronts. one is a stronger stance on China, but the second is more fiscal stimulus and a more aggressive profile of fiscal stimulus and so the Japanese market were responding quite nicely to that. The other area that responded was the um the dollar yen or the yen in general. So dollar yen went through 158.5 which is you know um haven't been there for a little bit and we're getting close to the 160 to 161 which is the standard or the typical level that people talk about in terms of Bank of Japan interventry of finance intervention. Uh it's very hard to forecast if that will happen how big it will occur. Uh, one of the interesting things though when looking through some of the positioning setups, so the last couple of times we've been sitting at 158 heading towards 160 is that the market has been very short yen and we can see that through CFTC data on futures. Uh, this time around we really don't see that. We actually see pretty clean um positioning. So no not not a large long position, not a long short position. Uh, and that is a very interesting backdrop. So if you think about the yen from a cycle value and sentiment process within this valuations are very cheap. The yen is one of the cheapest currencies out there. The cycle is a little bit supportive if the bank of Japan keep raising rates gradually and the feds stay on hold or actually maybe do that one rate cut. Uh but the sentiment is not really that attractive right now. And so we don't think it's a uh yet at a level that is an unsustainable extreme tactical opportunity. Uh we're closely watching those um positioning numbers over the coming weeks as we head into and out of that snap election. Uh with that, I might leave it there. If you um thank you for listening. Uh I look forward to speaking to you next time. Hi, I'm Sophie Antal, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key takeaways

Most big U.S. banks beat earnings expectations
China’s growth remains subdued
Japanese equities rally while yen weakens

Solid kickoff to Q4 earnings season

U.S. fourth-quarter earnings season began with major banks reporting results that were generally stronger than expected. Most large banks beat earnings forecasts, with many also exceeding revenue expectations, reinforcing our view that the U.S. economy remains in a healthy state.

Results were not universally positive, however. Some companies flagged higher-than-expected capital expenditure plans, which led to a modest market reaction. However, management commentary suggested that overall business conditions remain supportive.

Outside the financial sector, Delta Air Lines reaffirmed the idea of a “K-shaped” economy. The company reported a strong start to 2026, driven primarily by demand for premium and business-class travel. In our view, this highlights how higher-income consumers continue to account for a disproportionate share of spending.

Economic data released during the week painted a similarly resilient picture. U.S. inflation surprised modestly to the downside, particularly for core measures, though we do not see this as a major shift for Federal Reserve (Fed) policy. We continue to expect the Fed will stay on hold for much of the year, with the possibility of one rate cut later in 2026.

U.S. labor-market data also remains encouraging. Weekly jobless claims continue to trend lower, extending the “low-hire, low-fire” dynamic seen through much of last year. If growth reaccelerates as we expect—supported by fiscal stimulus, consumer spending, and continued investment in artificial intelligence—we believe hiring could gradually pick up.

Exports rise in China, but credit demand remains weak

Recent numbers continue to point to a soft growth environment in China. Exports remain one of the economy’s main sources of support, with the latest batch of trade data coming in stronger than expected.

In contrast, credit data suggests Chinese households and businesses remain cautious, with consumer borrowing still weak amid a soft housing market and limited recovery in corporate credit demand. Local government bond issuance has also remained subdued, though we expect activity to pick up later in the year as issuance quotas are utilized.

Overall, exports are helping to stabilize activity, but domestic growth remains subdued.

Japanese markets react to snap election speculation

In Japan, markets reacted sharply to political developments after Prime Minister Sanae Takaichi appeared likely to call a snap election, potentially as early as Feb. 8. Japanese equities responded positively, with the TOPIX up around 5% as of Thursday’s close.

The rally reflects expectations of increased fiscal stimulus. At the same time, the yen weakened, with the U.S. dollar rising to around 158.5 yen—approaching a level typically associated with government intervention.

One notable difference from previous episodes is positioning. Unlike past moves toward the 160 level, speculative positioning in the yen currently appears relatively neutral. While valuations remain attractive and the policy cycle could become more supportive if the Bank of Japan continues to raise rates gradually, sentiment has not reached extremes.

As a result, we do not view current yen levels as presenting a clear tactical opportunity, though we are watching positioning and political developments closely in the weeks ahead.

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