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Markets face testing day

Fawad Razaqzada Fawad Razaqzada 13/10/2021
Markets face testing day  Markets face testing day
Markets face testing day Fawad Razaqzada
  • Bank earnings kick off
  • CPI could be hotter than expected
  • FOMC minutes due later
 
It is a busy day for the markets as we kick off banks’ third quarter earnings season, while on a macro level, we will have the latest US CPI report and later the FOMC’s last meeting minutes. There’s something for everyone. Ahead of these events, there was a sense of calm in the market as bond yields eased back along with the dollar from their recent highs, providing some relief for the European stock markets and US index futures. LVMH's closely-watched fashion and leather-goods division, which is considered a bellwether for the industry, beat sales expectations, providing some relief for investors worried about Chinese demand weakening for luxury. Meanwhile, crude oil also eased back from multi-year highs as investors weighed the impact of higher future supply, both from OPEC+ and non-OPEC, and potentially lower demand growth against the current tightness in the market. Indeed, Russia’s Deputy Energy Minister said Moscow can boost its oil output in line with OPEC+ without any problems.
 
 
But it could be the calm before the storm, should CPI overshoot expectations, FOMC turns out to be very hawkish, and/or bank earnings disappoint really badly.
 

FOMC minutes eyed

 
Although yields have eased back, it wouldn’t take much to send them higher again. Later, at 19:00 BST, we will get to find out exactly how hawkish they Fed was at its previous meeting and whether they were already making plans about tapering QE in November. If that’s the case, then it would cement expectations that the Fed will announce plans to taper QE in November rather than in December. This will probably be a positive development for the dollar, even if some of the tapering expectations might already be priced in by now.
 

CPI could be hotter than expected

 
Before the FOMC minutes are released, we will first get the latest inflation data from the world’s largest economy at 13:30 BST. CPI has already surpassed the Fed’s target and overshot all sorts of expectations. If we see another sharp rise in prices, then this might trigger concerns that the Fed will taper QE faster than would ideally be the case. Stocks could drop and yields and the dollar might jump if this is the case. Analysts are expecting to see inflation remaining elevated. Headline CPI is seen rising 0.3% month-over-month, while core CPI is seen climbing by 0.2%, keeping their annual rates unchanged at 5.3% and 4.0% respectively. But given the renewed rally for energy prices in recent weeks, as well as the ongoing supply bottlenecks and other temporary factors, don’t be surprised if inflation proves to be even hotter.
 

Bank earnings kick off

 
JPMorgan will kick things off for US big banks with the release of its quarterly numbers before the bell. JP Morgan is expected to reveal its revenues weakened about 3.7% on the quarter, with sales of other US banks reporting this week also likely to take a hit. Although higher yields have helped expectations banks will earn better profits in the future, investment banking could be a weak spot for the sector. Mergers and acquisitions activity as well as IPOs have slowed compared to the previous quarters. There’s also questions about the level consumer demand for debt, given concerns about the pace of recovery and surging inflationary pressures.

Bank earnings will continue later this week, with Bank of America, Citigroup and Wells Fargo posting their results on Thursday, and Goldman Sachs to follow a day later on Friday.

Meanwhile we will also hear from Delta Air Lines today, which should give vital insights into the airline industry’s recovery from the pandemic.
 

Coming up later in the week

 
Thursday
  • Australian employment report
  • Chinese CPI
  • US PPI and jobless claims
  • Earnings: Bank of America, Citigroup and Wells Fargo
Friday
 
  • US retail sales, Empire State Manufacturing Index and UoM’s consumer sentiment and inflation expectations indices.
  • Earnings: Goldman Sachs
 
Stagflation concerns have been rising in recent weeks as inflationary pressures have been growing with energy prices surging etc. If the UoM survey show consumer inflation expectations have risen while sentiment towards the economy has dropped, this will provide hard evidence about the risks of stagflation.
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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