(Reuters) – With the U.S. earnings season already underway, heavyweights in banking such as Goldman Sachs are lining up for next week’s report. Investors will have access to a wide range of China data as the Bank of Japan meets in 2022.

Davos becomes virtual for another year. And how long can the pound withstand Britain’s growing political uncertainty.

Here’s your week ahead in markets from Ira Iosebashvili https://www.reuters.com/journalists/ira-iosebashvili in New York, Kevin Buckland https://www.reuters.com/journalists/kevin-buckland in Tokyo, Vidya Ranganathan https://www.reuters.com/journalists/vidya-ranganathan in Singapore and Karin Strohecker https://www.reuters.com/journalists/karin-strohecker and Dhara Ranasinghe https://www.reuters.com/journalists/dhara-ranasinghe in London.

1 BANKING ON IT

The U.S. earnings season kicks into high gear and it’s the financial sector with its explosive start to 2022 that is in full focus.

The Index is up almost 6% so far this year, while the broader is down 2%, as investors bet on banks benefiting from new lending and the higher yields https://www.reuters.com/business/rise-real-bond-yields-may-slow-not-stop-stock-market-bulls-2022-01-12 expected to accompany a more aggressive Federal Reserve https://www.reuters.com/markets/us/wall-street-banks-see-four-us-hikes-2022-inflation-is-wild-card-2022-01-10.

Goldman Sachs, BNY Mellon and Bank of America report on Tuesday. Bank of America reports on Wednesday. Netflix (NASDAQ:), on January 20 is one of the largest non-financial companies to report.

Bank executives are expected to be optimistic https://www.reuters.com/markets/us/big-us-banks-expected-post-uptick-core-q4-revenues-economic-rebound-2022-01-10 on the outlook, whether that is enough to sustain demand for bank shares remains to be seen. Bank stocks do much better when rates rise than during them.

2 GOOD NEWS FIRST

The good news for Bank of Japan officials meeting Jan 17-18 https://www.reuters.com/markets/currencies/boj-may-raise-price-outlook-keep-ultra-loose-policy-2022-01-12: inflation is creeping higher, the economy is picking up.

Consumer prices rose at their fastest pace in nearly two years https://www.reuters.com/markets/europe/japans-core-consumer-prices-rise-fastest-pace-nearly-2-years-2021-12-23 in November. Even Japan’s giant of affordable attire, Uniqlo says it has no choice but to raise prices – a change in a nation where deflation is the norm and firms deal with any rise in costs by tightening belts https://www.reuters.com/article/japan-companies-stimulus-idUSL4N2TR0EW rather than passing them on.

Bad news: The bad news?

Rising prices don’t reflect a decade of super-charged monetary stimulus. Instead, they are driven by rising energy prices and weakening the yen.

The challenge https://www.reuters.com/world/asia-pacific/bojs-kuroda-says-inflation-likely-gradually-accelerate-2022-01-12 is preventing rising living costs from hurting weak household spending and a fragile recovery. So, the BOJ may debate how soon it can start telegraphing a rate hike https://www.reuters.com/markets/currencies/exclusive-boj-debates-messaging-eventual-rate-hike-inflation-perks-up-2022-01-13 but will also pledge to continue ultra-easy policy this year.

3. BALANCING Act

Data on Monday confirmed China’s economy rebounded in 2021, growing 8.1%, from its pandemic-induced slump but the pace slowed https://www.reuters.com/markets/asia/chinas-q4-2021-gdp-grow-faster-than-expected-2022-01-17 in Q4.

China’s central bank unexpectedly cut https://www.reuters.com/markets/rates-bonds/china-cuts-rates-policy-loans-analysts-point-more-easing-ahead-2022-01-17 the borrowing costs of its medium-term loans for the first time since April 2020.

Stop-go efforts at easing monetary conditions is a key focus for investors, alongside whether policymakers can balance cleaning up a bloated property sector while containing stress https://www.reuters.com/markets/deals/china-plans-relax-three-red-lines-encourage-state-led-property-ma-redd-2022-01-07 on home buyers and suppliers.

Due to the Chinese New Year Holiday in February and the Winter Olympics at Beijing in March, the central banks will want to ensure that markets and banks are stocked with cash. China’s overnight interest rate has jumped to 4mth high. This policy rate is in sharp focus.

4/ VIRTUAL DAVOS

For a second year, world leaders, policy makers and top corporate chiefs bound for the World Economic Forum (WEF) in the Swiss ski resort of Davos on Jan. 17-21 will tuck away snow boots https://www.reuters.com/business/world-economic-forum-defers-davos-meeting-amid-pandemic-2021-12-20 and hop on video calls https://www.weforum.org/events/the-davos-agenda-2022 to tackle the world’s big challenges.

The mood is glum: Only one in 10 WEF members surveyed https://www.reuters.com/markets/europe/gloomy-outlook-global-recovery-world-economic-forum-survey-finds-2022-01-11 expects the global recovery to accelerate over the next three years, with only one in six optimistic about the world outlook.

While climate change is viewed as the greatest threat, erosion of social cohesion as well as livelihood crises and mental health problems are the main risks.

Fumio of Japan, Narendra Modi from India, Ursula von der Leyen from the European Commission, Janet Yellen, U.S. Treasury Secretary Janet Yellen, and Christine Lagarde, ECB, are scheduled to all speak. Postponement of the full meeting in person has been made to early summer.

5/ HIGH STERLING

Sterling is sailing high thanks to signs the Omicron COVID surge https://www.reuters.com/world/uk/englands-nhs-tells-private-health-providers-prepare-help-us-2022-01-10 is easing and expectations that British interest rates https://www.reuters.com/markets/europe/inflation-risk-omicron-slowdown-boe-rate-move-balance-2021-12-16 will likely rise again in February. The currency is currently at its two-month peak against the dollar, and it has been one of the most stable major currencies in early 2022.

The currency bulls can push sterling higher by boosting rate hike expectations in the future data. This Tuesday’s release includes November job numbers, and Wednesday’s releases include December inflation figures. Thursday will bring retail sales figures and Wednesday’s data on December inflation.

The political uncertainties are not affecting the pound’s performance. Boris Johnson’s position as prime minister appears vulnerable after revelations https://www.reuters.com/world/uk/party-over-uk-pm-johnson-faces-crunch-day-parliament-2022-01-12 he attended a Downing Street party during a 2020 lockdown. A week seems like a very long time for politics. This might also hold true when trading the pound.