Inflation concerns and rising energy prices have set the backdrop for the start of the third quarter of the US earnings session in the coming week.
The annual meetings of the World Bank and the International Monetary Fund (IMF) also begin on Monday, but the event is hit by a data-rigging scandal that threatens the career of IMF boss Kristalina Georgieva.
Here are five stories about dominating the markets in the coming week:
1/ income, non-stop
As some of the world’s biggest banks started US earnings, investors worried here over inflation, rising energy prices and the upcoming tapering of the Federal Reserve’s $120 billion monthly stimulus.
Banks broke profit estimates reut.rs/3oGkTU3 In the second quarter as the economy recovered, Wells Fargo, Bank of America Corp, Citigroup and JPMorgan Chase combined posted profits of $33 billion.
This momentum is likely to slow in the third quarter; According to Refinitiv’s I/B/E/S data, financial earnings are projected to grow at 17.4%, up from around 160% in Q2.
Broader S&P 500 index earnings are expected to rise 29.4%, which puts them on track to overtake the financial sector for the first time in five quarters. BlackRock and JPMorgan reported on Wednesday; Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs later in the week.
Graphic: Earnings Growth: Financials vs. S&P 500 –
As global standoff fears, China’s economy reut.rs/2WT1aF7 Receives a critical health check with bank lending data for trade and inflation.
Thursday’s factory gate prices for September are in focus after hitting a 13-year peak in August on rising raw material prices. Those costs have only increased since then, including higher coal prices. government is giving ration reut.rs/3BqhGv4 For heavy industry, the reason for factory production to be contracted.
Given Evergrande’s risk of transition from debt crisis, the crisis is raising concerns of a recession reut.rs/3iIkZGF and Beijing’s crackdown on tech firms.
Although its impact is being felt as far as Wall Street, the brunt of China’s neighbors and largest trading partners may have to bear the brunt.
Graphic: China thermal coal prices on strong power demand, tight mine supply
3/Old institutions, new scams
The great and good of central banking, finance and politics come together in the annual World Bank and IMF Here meetings from monday
There’s a lot to chew on: The global lender will unveil its new economic projections here, planning to redistribute $650 billion of SDR – the IMF’s own currency – to help poor countries, while Ireland has raised global taxes here. Opposition to overhauling the rules has been abandoned.
But the elephant in the room is IMF chief Georgieva’s future, after claiming she pressured World Bank staff to change data in China’s favor while in her previous role.
The allegation – here strongly dismissed by Georgieva – would cast a cloud over the fund’s initiatives to aid the world’s recovery from the pandemic.
Graphic: Largest SDR allocation in USD terms –
4 / UK Data Bonanza
As UK economy shows signs of slowing reut.rs/3Dh8I43 Amid rising prices, supply chain disruptions and staff shortages, the upcoming data release will draw attention.
The September unemployment calculation is published Tuesday, along with the August unemployment rate and wage data. August GDP data is released on Wednesday along with industrial and manufacturing numbers.
Markets are betting the Bank of England will join its peers reut.rs/3mDvrRg And raise interest rates in February. But while British gilt yields have risen, expectations have done little to lift sterling.
Graphic: UK economy loses steam as post-lockdown crunch mounts
5/ Dancing on the Roof
Funds rush to meet rebalancing portfolios and U.S. bank cash reserve rules tend to lift the dollar at the end of each year. There are more sources of support this year.
First, the Fed is set to ease stimulus. The “real” US yield – adjusted for inflation – is deeply negative, but at -0.9%, compare favorably to Germany’s -1.9%. No rush to tighten policy with ECB reut.rs/3DnxqzH, the gap can be wide.
Second, as economic growth slows, stocks have declined and demand for safer assets, including the dollar, has increased. The uptrend in commodities, mainly trading in dollars, is another impetus to buy the greenback.
Unsurprisingly, the premium for reaching the greenback is rising; The euro-dollar three-month swap spread is around 16 basis points, more than doubling its end-September levels.
Headwinds? The market can “sell the fact” once tapering occurs. Another risk is the loan limit deadline, which has been waived till December 3. reut.rs/2Yzr5lO; A default while unlikely, could prove disastrous. But even so, the dollar can bid, as it did in 2008.
Graphic: Dollar Swap –