This could end up a very messy and untidy week for markets.
While it is a holiday-shortened week (Columbus Day today in the US) with the bond market closed, share markets will be open with investors looking forward to Friday and the conjunction of three potentially market-moving events.
There’s the US September consumer price inflation data out on Friday, the same day as the expected end of the Bank of England’s 65-billion-pound bond buying operation to support febrile UK financial markets.
And four of America’s biggest banks – JPMorgan, Morgan Stanley, Citigroup and Well Fargo, plus two major regionals in PNC Financial and US Bancorp are expected to release what are forecast to be weak earnings reports for the September quarter.
Markets could be badly rattled Friday if things go wrong – more bond selling in the UK, an inflation surprise and very poor earnings data, but chances are that events will end up going to plan and calming frazzled expectations.
UK investors, analysts and others are hoping the BoE announces its post October 14 approach well before Friday. That would clear the way for the markets to focus on the size and the shape of the pace of US inflation report for last month.
The size of the month on month and annual inflation rate will likely decide between a 50- or 75-basis point rate hike at the November 1-2 meeting of the Federal Open Market Committee (The RBA makes its decision on November 1).
The Fed wants concrete evidence that inflation is falling back toward its 2% target, but if inflation continues to deviate from the Fed’s forecast, another aggressive rate hike is likely, according to economists at ratings group, Moody’s.
Inflation rose 0.1% in August from July when it was unchanged from June (and its outsized 1.3% month on month rise from May).
There will also be new data on US producer prices. The combination of the PPI and CPI will give us a really good idea what the PCE deflator, the Fed’s preferred measure of inflation, did in September (that’s out the Thursday before the Fed meeting).
There will also be new data on retail sales, import prices and business inventories. Retail sales might show a small rise in unadjusted terms and a fall in real terms.
The September quarter earnings season really steps up with four of the six big banks (see separate story). Other companies reporting this week include Delta, Blackrock, Charles Schwab, Alcoa and Pepsi Co.
In Australia, the Westpac/MI consumer sentiment index (Tuesday) is likely to have remained weak in October with the rebound in petrol prices offsetting the slowdown in RBA rate hikes, according to the AMP’s chief economist, Shane Oliver.
The NAB business survey (also Tuesday) is likely to show continued solid confidence and conditions readings.
Wednesday’s speech by RBA Assistant Governor (Economics) Lucy Ellis will also be watched for any implications for monetary policy.
The Bank of Queensland releases its full year figures tomorrow for 2021-22. There should be a hint about the impact of rising interest rates on the BoQ’s net interest margin, as well as any sign of rising bad debts.
In Europe there’s the euro zone’s industrial production data for August as well as the zone’s goods trade balance for August.
The final CPI data for September will be issued this week.
Moody’s economists expect that Germany CPI inflation rose to 10% year on year in September from 7.9% in August, that France’s eased to 5.6% from 5.9%, and that Spain’s CPI fell to 9% from 10.5%.
Lower oil prices helped alleviate inflation rates, and price caps in Spain in France also kept a lid on upward pressures. Germany’s inflation rate spiked following the expiration of some policies it had taken over the summer, such as its mega discount on public transportation.
After a big holiday last week, China prepares for a double bang on Friday with September inflation and trade data to be released, three days ahead of the Communist Party’s 20th Congress starting today week.
Elsewhere in Asia, the Bank of Korea is expected to rase its base rate by 50 basis points to 3%. Inflation expectations for the next 12 months eased in the latest consumer sentiment survey by 0.1 percentage point to 4.2%. Inflation is sitting well above that at an annual 5.6%.
