Take Five: Inflation, Energy, and Profits

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York, United States, October 6, 2021. REUTERS / Brendan McDermid

Inflation anxiety and soaring energy prices form the backdrop to the start of the third quarter results season in the United States next week.

The annual meetings of the World Bank and the International Monetary Fund (IMF) also start from Monday, but the event is overshadowed by a data-rigging scandal that threatens the career of IMF boss Kristalina Georgieva.

Here are the five stories that are likely to dominate the markets over the coming week:

1 / NON-STOP BENEFITS

Some of the world’s biggest banks are throwing profits in the United States, just as investors worry about inflation, skyrocketing energy prices and the upcoming $ 120 monthly stimulus package cut. billion dollars from the Federal Reserve.

Banks smashed second quarter earnings estimates as the economy rebounded, with Wells Fargo (WFC.N), Bank of America Corp (BAC.N), Citigroup (CN) and JPMorgan Chase (JPM.N) posting a total of $ 33 billion in profits.

This momentum probably slowed down in the third quarter; Financials profits are expected to grow 17.4%, up from nearly 160% in the second quarter, according to I / B / E / S data from Refinitiv.

Profits on the larger S&P 500 Index are expected to rise 29.4%, putting them on track to overtake financials for the first time in five quarters. BlackRock (BLK.N) and JPMorgan report Wednesday; Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs later in the week.

– US banks to report mixed results in Q3, uncertain lending outlook read more

Reuters Charts

2 / CHECK-UP CHINA

As stagflation fears simmer globally, China’s economy is undergoing a crucial health check, with data covering bank lending to trade and inflation.

Thursday’s ex-factory prices for September are the focus of concern after hitting 13-year highs in August due to soaring raw material costs. These costs have only increased since then, including ever higher coal prices. The government is rationing electricity to heavy industry, causing factories to contract output.

The crisis is fueling concerns about a slowdown, given the risks of contagion linked to Evergrande’s debt problems and Beijing’s crackdown on tech companies.

As the impact spreads to Wall Street, neighbors and major trading partners of China could pay the price.

– In the midst of the electricity crisis, China’s leading coal region asks mines to immediately increase their production read more

China Thermal Coal Prices Rise Due To Strong Demand For Electricity And Squeezed Mining Supply

3 / OLD INSTITUTIONS, NEW SCANDALS

Big and big ones from central bank, finance and politics meet at the annual World Bank and IMF meetings starting Monday.

There’s something to chew on: The global lender will unveil its new economic projections, plans to redistribute $ 650 billion in SDRs – the IMF’s own currency – to help poorer countries, while Ireland has abandoned its opposition to overhaul of global tax rules.

But the elephant in the room is the future of IMF chief Georgieva after claiming she pressured World Bank staff to change the data in favor of China, as she ‘she was in her previous position.

The allegations – strongly rejected by Georgieva – will cast a cloud over the fund’s initiatives to help with post-pandemic recovery around the world.

-IMF board to meet again on Georgieva review on Friday -source read more

Reuters Charts

4 / UK DATA BONANZA

As the UK economy shows signs of slowing due to rising prices, supply chain disruptions and staff shortages, upcoming data releases will attract attention.

On Tuesday, the September unemployment tally is released, along with August unemployment rates and wage data. August gross domestic product data is released Wednesday, along with industry and manufacturing figures.

Markets are betting that the Bank of England will join its peers and raise interest rates in February. But as UK gilt yields have surged, expectations have done nothing to push the pound up.

– Shortages and soaring prices are slowing construction growth in UK: PMI read more

Reuters Charts

5 / DANCE IN THE CEILING

Funds that rebalance portfolios and US banks rushing to adhere to cash reserve rules tend to push the dollar up towards the end of each year. This year there are even more sources of support.

First, the Fed appears poised to cut stimulus. US “real” yields – adjusted for inflation – are deeply negative, but at -0.9%, compare favorably with Germany’s -1.9%. As the ECB is in no rush to tighten its policy, the gap could widen.

Second, as economic growth slows, stocks have fallen and have boosted demand for safer assets, especially the dollar. Another incentive to buy the greenback is the rally in commodities, traded mostly in dollars.

Unsurprisingly, the premium for accessing greenbacks is increasing; Three-month Euro-dollar swap spreads are around 16 basis points, more than double the levels at the end of September.

Opposing winds ? Markets could “sell the fact” once the reduction occurs. Another risk is the maturity of the debt ceiling, postponed to December 3; a fault, although unlikely, could turn out to be catastrophic. But even then the dollar could catch up with an offer, as it did in 2008.

– ANALYSIS-Will the truce in Washington hold? Wall St assesses the risk associated with the US debt ceiling read more

Dollar exchanges

Reporting by Ira Iosebashvili and Saqib Ahmed in New York, Kevin Buckland in Tokyo, Sujata Rao, Karin Strohecker and Tommy Wilkes in London; Compiled by Dhara Ranasinghe; Editing by Toby Chopra

Our Standards: Thomson Reuters Trust Principles.

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