Written Commentary
ADM Reports Q4 and Full-year 2025 Results
February 3, 2026
Hopes for a near-term de-escalation of Middle East conflict looking forlorn given selection of Mojtaba Khamenei as Supreme Leader and US and Israeli rhetoric over the weekend; busier run of China, UK , German and Japan statistics and surveys to digest.
- Market reaction to Middle East looks both impaired and rather too orderly
- Japan: highest rise in base salaries for 34 years points to increasingly virtuous underlying pace of wage increases
- Germany: disappointing Orders and Production reaffirm view that growth impulse from rising Federal spending likely to disappoint
EVENTS PREVIEW
The appointment of Mojtaba Khamenei as Iran’s new supreme leader, and weekend comments from the administrations in the US and Israel, confirm that neither side has any willingness to communicate, and per se the extended jump in oil, gas and other energy prices was inevitable. Markets’ reaction function remains impaired and indeed discombobulated, perhaps best exemplified by a softer Swiss Franc (see chart), given that Gold inevitably faces headwinds from a stronger USD, while bonds are threatened by higher inflation from the surge in oil and gas prices. Also notable that realised volatility on US equities remains well below implied, despite the VIX having now climbed to 30.8%, albeit in a surprisingly and relatively orderly fashion. That CHF weakness may to an extent reflect an element of Gresham’s law (bad money chasing out good, i.e. liquidating well performing assets to cover losses elsewhere), but the relative ‘orderliness’ outside of the energy sector may be flagging a deeper seated and heavily conditioned (by the past 6 years in markets) to prepare for a recovery in risk assets (i.e. FOMO and BTD).
The overnight run of data saw higher than expected China CPI and PPI, which, to a certain extent, reflect typical Lunar New Year distortions, though at 1.0% m/m CPI was well above the longer run LNY average of 0.8%. Both will inevitably rise further due to the impact of the war in the Middle East, though whether this proves durable in the medium-term remains open to debate. The latest UK KPMG/REC Employment survey reinforces the view that labour demand has turned a corner after a protracted period of weakness, but looks unlikely to be strong enough to exercise significant upward pressure on wages in the near-term. By contrast, the pick up in Japan’s Labour Cash Earnings to a higher than expected 3.0% y/y was paced by the strongest rise in Base Salaries since 1992, and looks set to accelerate further given that indications for the current year’s wage settlements look to be at or above the 5.0% level seen last year. Last but not least, a much sharper than expected reversal of December’s German Factory Orders gains, and an expected modest drop (-0.5% m/m) in Industrial Production underscore the view that there remain still very substantial headwinds to the economy really benefitting from the sharp increase in federal government spending on defence and infrastructure, to which the spike higher in energy prices obviously also poses a huge threat.
Recap: The Week Ahead – Summary Preview:
The war in the Middle East will remain the centre of attention, with little to suggest that an end is in sight. Crude Oil production in the region is being curtailed due to the effective closure of the Straits of Hormuz, most dramatically in Iraq with estimates suggesting output has dropped to 1.3 Mln bbls from the pre-war level of 4.3 Mln, but also in Kuwait, UAE and Qatar, with Gas output also dropping along with refinery throughput. Brent Crude futures appear likely to test and breach $100, a level which has already been breached on UAE Murban ($103), Oman Crude ($107) and in USD terms Chinese Crude ($109) futures. Supply chains across many sectors, and above all in Asia and Europe, now face major disruptions, and there has been a fresh threat from Iran to target energy infrastructure, following US and Israeli attacks on Iran’s energy and other infrastructure, while the threat to oil and other shipping is more than obvious, and there is talk of an operation to seize Iran’s stockpile of Uranium. Given that neither side in the conflict appears minded to negotiate, the threat to financial stability, above all in sectors such as private credit, is very elevated, as is the prospect of substantial impacts on both growth and inflation, across the globe.
- There is a busy run of major economic data, numerous central bank speakers and key monthly reports in the commodities and energy sectors, and corporate earnings from Saudi Aramco. The US looks to both Feb CPI and Jan PCE deflators, the former seen remaining relatively subdued (headline and Core CPI seen unchanged at 2.4% & 2.5% y/y), but the latter are expected to stay elevated – headline PCE at an unchanged 2.9% y/y, with core edging up 0.1 ppt to 3.1%. Q4 GDP is seen unrevised at 1.4% SAAR, while Durable Goods Orders are seen posting solid gains on headline and core measures, but perhaps most attention will be given to Michigan Sentiment, seen at 55.3 from 56.6 and likely to reflect some consumer reaction to the first few days of the Iran conflict. Oracle is likely to be the highlight of a limited run of corporate earnings. China has inflation, trade and likely credit aggregates too. Lunar New Year timing effects are set to boost CPI sharply to 0.9% y/y from 0.2%, with PPI deflation also seen easing to -1.1% y/y from 1.4%. Exports are forecast to rise 7.1% y/y and Imports are also seen up 6.4%, though LNY timing effects may well result in outliers. The UK has monthly GDP and activity indicators as its highlights with GDP and Index of Services seen up 0.2% m/m, with Manufacturing Output forecast at 0.3% m/m, while Construction Output flatlined. BRC Retail Sales are expected to another month of modest growth at 2.0% y/y, while the RICS House Price Balance likely edged up to -9. The focus for the Eurozone will be the run of German activity indicators that are anticipated to show Factory Orders posting a reactive -4.3% m/m correction to December’s 7.8% m/m increase, and by contrast Industrial Production rebounding 1.0% m/m after sliding -1.9%, while Exports are forecast to fall 1.8% m/m, and Imports to be unchanged. Japan’s BoJ has wage growth at the top of its list of priority indicators and would welcome the anticipated rise in Real Labour Cash Earnings to 0.9% y/y from a rather distorted dip of -0.1% in December. Q4 final GDP is seen revised up to 1.0% SAAR from 0.2% thanks to last week’s better than expected Q4 CapEx. In the commodities/energy space, the EIA, IEA and OPEC monthly Oil Market reports will primarily be of interest for what they say about potential output disruption due to the war, though at this early stage none of these are likely to say much other than that this will depend on the length of the conflict, and the extent of disruption to seaborne flows and damage to infrastructure. In the Agricultural space, all eyes will be on the USDA’s WASDE report, along with other S&D reports from Brazil’s CONAB and Unica (sugar), and France’s AgriMer.
- There are 7 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: BMW, BioNTech, Cambricon Technologies, Casey’s General Stores, CATL, CEZ, Chocoladefabriken Lindt & Spruengli, Constellation Software Canada, Daimler Truck Holding, Dollar General, Dr Ing hc F. Porsche, Elite Material, Foxconn Industrial Internet, Franco-Nevada, Geberit, Generali, Hannover Re, Henkel, Hithink RoyalFlush Information Network, HP Enterprise, IndiTex Lennar, MTR, Oracle, Partners Group, Rheinmetall, RWE, Saudi Arabian Oil, Shennan Circuits, Standard Bank Group, Swiss Life, Ulta Beauty, Volkswagen, Wheaton Precious Metals.
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