- 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.
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