MORNING BID-Earnings face the inflation test

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October 11 – A look back at the day coming from Danilo Masoni.

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After weeks of debate about the perceived temporary nature of high inflation and its potential monetary policy implications, markets are about to explore how rising input costs affected companies during the third quarter of 2021.

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As the reporting season begins this week, moving forward from the full recovery narrative of the past two quarters, rising commodity prices, labor shortage and supply constraints will be the main story. But with world stocks down 6% from last month’s record highs, it’s anyone’s guess whether a margin squeeze is already worth the price.

Asia started an upward move on Monday, but European and US equities futures take some caution, possibly as oil prices extended their multi-week gains, pushing Brent crude to a new three-year high.

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Still, investors can come to terms with more moderate economic growth momentum. Nineteen S&P 500 firms reported earnings from the big banks this week; Refinitiv IBES forecasts profit growth of 30% for the quarter, down from 96% in the previous three-month period.

Companies may find it harder to engage in tax arbitrage in the future – a common practice especially among tech and pharma firms – after 136 countries agreed on Friday to impose a 15% minimum tax rate on large firms.

Meanwhile, the loud noise of the central bank continues. Bank of England policymaker Michael Saunders told households to prepare for interest rate hikes “quite early”. He spoke shortly after BoE Governor Andrew Bailey said the above target was inflation related and had to be managed.

A Polish rate setter also said last week’s surprise rate hike was the beginning of monetary policy normalization.

Key developments that will provide further direction to the markets on Monday:

* Japan’s households expect inflation to rise – BOJ survey

* Goldman cuts US economic growth forecast for 2021 and 2022

*Chinese developer Modern Land asked to delay bond payment – WSJ

*Yelan confident US Congress will pass minimum global corporate tax

* ECB board members Frank Alderson, Philip Lane

*World Bank/IMF meetings

* Fed Speaker: Chicago Fed President Charles Evans

Reporting by Danilo Masoni; Editing by Sujatha Rao

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