Key Factors:- Next week’s highlights include UK and Eurozone flash PMIs, ECB and BoC rate decisions, US PCE, and Australian CPI. etc.

A big week of earnings reporting could distract investors from the Middle East and rising Treasury yields. Among the heavyweights reporting are Amazon (AMZN), Microsoft (MSFT), Meta Platforms (META) (preview), Coca-Cola (NYSE:KO) (analysis), AbbVie (ABBV), and Chevron (CVX).
The European Central Bank will set interest rates on October 26. After raising rates 450 points since July 2022, the ECB is anticipated to hold them stable. The Federal Reserve will be in a blackout before the November FOMC meeting, but the “higher for how much longer” guessing game will continue. BNP Paribas expects the Federal Reserve to hold rates steady through 2023 and not lower them until June 2024, while Seeking Alpha analyst John M. Mason stressed that the Fed will not soften on inflation and Mott Capital Management warned that the Fed’s policy challenges will hurt the stock market.

Weekly Economic calendar USA Oct 23 to Oct 27

Monday

• CHICAGO FED NAT ACTIVITY INDEX
• 3/ 6-Month Bill Auction

  

Tuesday 

• Canada New Housing Price Index (YoY/MoM)
• S&P GLOBAL US PMI
• RICHMOND FED MANUFACTURING
• Retail Sales (Sept) 
• Industrial Production (Sept) 
• Business Inventories (Aug) 
• Retail Inventories (Aug) 
• NAHB Housing Market Index (Oct) 

Wednesday 

• Bank of Canada Monetary Policy Report
• BoC Interest Rate Decision
• BoC Rate Statement
• New Home Sales for Sep
• MBA MORTGAGE APPLICATIONS

Thursday 

• Initial Jobless Claims
• Durable Goods Orders for Sep
• GDP for Q3 
• Pending Home Sales Index for Sep

Friday 

• Personal Income & Spending for Sep
• Personal Consumption Expenditures (Core PCE) for Sep
• University of Michigan Consumer Sentiment for Oct 

TOP FACTORS IN WALL STREET

In the following week, four of seven megacap businesses will report profits, presumably maintaining the risk-off mindset. U.S. statistics will update markets on economic strength. The European Central Bank will deliver its latest rate decision as oil prices remain volatile. Start your week with these tips.

Risk-averse

A risk-off sentiment dominates markets as investors worry about future interest rate hikes and the Israel-Hamas conflict. A disappointing Tesla (NASDAQ:TSLA) earnings report last week further dampened the sentiment.
The CBOE Volatility Index, Wall Street’s most closely monitored investor uneasiness indicator, closed Friday at its highest in over seven months. The Dow plummeted 1.6%, the S&P 500 2.4%, and the Nasdaq 3.2% for the week.
Following Fed Chair Jerome Powell’s comments, the 10-year Treasury yield fell on Friday after surpassing 5% for the first time since July 2007.
Since interest rates rose early last year, investors have flocked to dollar, gold, short-term Treasuries, and money-market funds, which offer better yields.

Megacap earnings

This week, four megacap corporations will report third-quarter profits, a major test for a group of equities that have driven the S&P 500 higher this year.
Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report on Tuesday, Meta Platforms (NASDAQ:META) on Wednesday, and Amazon (NASDAQ:AMZN) on Thursday.
Those firms, together with Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), and Tesla, have driven the S&P 500’s 10% year-to-date gain, so disappointing results might cause widespread damage.
Coca-Cola (NYSE:KO), General Motors (NYSE:GM), Merck (NYSE:MRK), and UPS will also report this week. After a weak first half, investors expect U.S. profits to recover.

USA Market data

This week, third-quarter growth and the Fed’s preferred inflation indicator, the core personal consumer expenditures price index, will provide market updates on the U.S. economy.
Strong consumer expenditure is expected to push third-quarter GDP to 4.1%.
The core personal consumption expenditures price index, which excludes volatile food and gasoline expenses, is expected to rise 3.7% annually.
On Thursday, Fed Chair Jerome Powell said the stronger-than-expected U.S. economy may require tighter policy, but increasing market interest rates may not.

Oil prices

Oil prices fell on Friday after Hamas released two U.S. detainees from Gaza, raising expectations that the Israeli-Palestinian conflict may deescalate without affecting oil supply in the Middle East.
Brent crude futures lost 22 cents, or 0.2%, to $92.16.
After settlement on Friday, November U.S. crude futures slipped 62 cents, or 0.7%, to $88.75 a barrel. The current December crude contract fell 29 cents to $88.08 a barrel.For the second straight week, both front-month contracts increased over 1%.
“The Middle East remains a big focus of the market because of fears of a region-wide conflict that would likely disrupt oil supplies,” new york-based again capital partner John Kilduff told Reuters.

ECB may hold Interest rates

Thursday marks the latest ECB policy meeting, with interest rates expected to remain on hold.
After the ECB raised its deposit rate at each of its last 10 meetings to a record high, policymakers have suggested they may stop to review the impact of monetary tightening.
Market investors will watch for signs of a December rate hike.
Tuesday’s Eurozone October PMI numbers will be eagerly examined before Thursday’s meeting. Recent economic data has prompted concerns about the bloc’s economy due to decreasing consumer spending and excessive inflation.

The BoC is expected to keep interest rates unchanged at 5.0%

Given the recent shortfall in the CPI report, the Bank of Canada is projected to hold interest rates unchanged at 5.0%. Prior to that, there was a good likelihood that the BoC would have increased by 25 basis points as underlying inflation indicators continued to surprise to the upside and wage growth continued to move upward. If the Bank of Canada surprises the market with a rate hike, the Canadian Dollar is expected to fall after an initial surge.

US Initial Claims

Last week, initial claims in the United States exceeded expectations once more, but continuing claims fell short for the second time in a row, indicating that workers are finding it more difficult to find another job after being laid off. Initial Claims are predicted to be 209K this week, up from 198K the previous week, while Continuing Claims are expected to be 1720K, up from 1734K the previous week.

US PCE Y/Y

The US PCE Y/Y is predicted to fall to 3.4% from 3.5% previously, while the M/M reading is expected to fall to 0.3% from 0.4% previously. The Fed’s preferred measure of inflation, Core PCE Y/Y, is forecast to be 3.4% vs. 3.5% before, while the M/M figure is expected to be 0.3% vs. 0.1% previously. This news should not move the market because it is unlikely to impact the near-term policy stance and we recently received the more timely CPI report.

Weekly Global Market Calendar (23 Oct-27 Oct)

Monday, October 23

• Bank of Israel Announcement
• EZ Consumer Confidence (Oct)
• US National Activity Index (Oct)

Tuesday, October 24

• German GfK Consumer Confidence (Nov)
• EZ/UK/US Flash PMIs

Wednesday, October 25

•  BoC Announcement
• NBH Announcement
• Australian CPI (Q3/Sep)
• German Ifo Survey (Oct)

Thursday, october 26

• ECB Announcement
• CBRT Announcement
• South Korean GDP Advanced (Q3)
• US GDP Advanced (Q3)

Friday, October 27

• CBR Announcement
• Japanese Tokyo CPI (Oct)
• Australian PPI (Q3)
• US PCE (Sep)

Global Events in details date wise

Monday Oct 23

No Events

Tuesday Oct 24

EZ FLASH PMI

October manufacturing PMI could improve to 43.7 from 43.4, services 48.6 from 48.7, and composite 47.4 vs. 47.2. The composite metric rose to 47.2 from 46.7 after the manufacturing component fell to 43.4 from 43.5 and the services headline rose to 48.7 from 47.9. For the next release, ING analysts said “while much less relevant than the ECB meeting, it has caused some movement in recent months as weakening economic data from the eurozone has raised concerns over a possible downturn”. The desk says “a downbeat PMI reading would be negative for euro sentiment as it would increase expectations of a recession”.

UK FLASH PMI

October’s services PMI could improve to 49.5 from 49.3, and manufacturing to 44.6 from 44.3. Prior report: services fell to 49.3 from 49.5 and manufacturing rose to 44.3 from 43.0, leaving the composite at 48.5 vs. 48.6. Oxford Economic expects the data to “signal a further contraction in private sector output” this time. Manufacturing should be relieved by the slowing rate of new orders, according to the consultant, in October. Oxford Economics is less optimistic about services due to decreasing demand, especially from abroad. Since the MPC stopped last month, a soft release is unlikely to affect the November meeting. Signs of a deeper slowdown could push rate cut predictions into 2024.

Wednesday Oct 25

BOC ANNOUNCEMENT

The market currently prices in an 80% probability of rates staying the same, while the probability of a BoC raise in October dropped to just 20% after Canada’s September inflation report showed CPI cooling more than expected. After the economy unexpectedly contracted in Q2, analysts have been more cautious on the growth prospects, and activity has been sluggish due to BoC tightening, wildfires/floods, and labor market industrial action. There are also concerns that increased rates may raise mortgage expenses. The labor market is resilient, with August and September job gains and a low unemployment rate. ING analysts note that BoC Governor Macklem recently stated that the central bank is focused on inflation expectations and wage growth, which are volatile but going upwards. “Slower-than-expected inflation, a clouded growth outlook and higher bond yields means the BoC is likely to overlook jobs tightness and keep rates on hold,” ING says, adding “there is still all the interest in keeping a higher-for-longer narrative alive, but markets may start to shed some doubts on it.”

Australian CPI Q3

September measures will be revealed on Wednesday. The September Weighted CPI Y/Y is predicted to rise to 5.4% from 5.2%, while the Q3 Q/Q rate is expected to be 1.1% (prev. 0.8%) and 5.3% (prev. 6.0%). On the quarterly measures, Weighted Median Q/Q is projected at 1.0% (prev. 1.0%), Y/Y at 5.0% (prev. 5.5%), and Trimmed Mean Q/Q at 1.1% (prev. 0.9%) and 5.0% (prev. 5.9%). Westpac analysts say “This month will see a quarterly update of some critical services prices including health” and that forecasts “have a larger than usual degree of uncertainty due to our uncertainty around what the full impact of the changes to government rebates will mean for childcare prices.” The desk also notes that last month, while August’s print was in line with Westpac estimates, analysts were shocked by housing’s weaker improvement and lower rents. On Tuesday, a day before the CPI metrics, Governor Bullock will speak. In her most recent speech, she said she is more concerned about the inflation impact from supply shocks and seeing demand slow and per capita consumption declining, and if inflation remains higher than forecast, the RBA will have to respond with policy. Recent RBA minutes were hawkish, noting that “Further tightening may be required if inflation is more persistent than expected” and that “rising house prices could support consumption and might signal policy is not as tight as assumed.”

Thursday Oct 26

ECB ANNOUNCEMENT

Markets almost guarantee the ECB will hold all three key rates. The September policy statement stated that the GC presently believes rates “have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”, indicating that rates will remain steady. In September, headline Y/Y CPI decreased to 4.3% from 5.2% and super-core fell to 4.5% from 5.3%. The September Composite Eurozone PMI improved to 47.2 from 46.7, but remained in contractionary territory as “output volumes across both the manufacturing and service sectors were constrained by deteriorating demand conditions”. President Lagarde has maintained that rates are adequately restrictive and that earlier hikes have caused policy lag. Even Governing Council hawks like Netherlands’ Knot are “comfortable” with interest rates. Additionally, recent Eurozone bond yield increases may tighten financial conditions, while Middle East geopolitical risks warrant prudence. As with other major central banks that have created a “pause,” authorities may want to maintain the option of raising rates beyond October, especially given the recent oil price spike. Two policymakers have urged that the forthcoming meeting address an early halt to PEPP reinvestments, which are scheduled to cease in 2024. ING believes “the surge in bond yields, combined with new debt sustainability concerns in the eurozone” makes it harder for the ECB to conclude reinvestments early.

CBRT ANNOUNCEMENT

There are no expectations for what the central bank may do during its meeting. Last month, the CBRT raised rates 500bps to 30% to match market expectations. The Bank said tightening will continue until inflation improves significantly, then it will be strengthened as needed in a timely and progressive manner. The CBRT committed to simplifying and improving the micro and macroprudential framework. July and August inflation was beyond projections, the release said. CapEco analysts said the central bank is “now doing what many investors had hoped they would by raising interest rates sharply and taking a more serious stance against inflation” and “All of this is helping to maintain investor optimism in the policy shift and keeping Turkey’s sovereign dollar bond spreads near multi-year lows.” CapEco recommends tightening more because the desk expects rates to reach to 35% by year-end. Latest CBRT poll upgraded end-year CPI prediction to 68.01% (prev. 67.22%) and GDP Growth to 4.1% (prev. 3.9%). The USD/TRY was raised to 30.0453 (prev. 30.1422), and the 12-month CBRT Rate was raised to 37%.

Friday Oct 27 

Japanese TOKYO CPI

The Tokyo CPI precedes the countrywide publication two weeks later. In October, headline CPI is expected to drop to 2.7%, while “ex-fresh food” will remain at 2.5%. Tokyo’s CPI inflation is anticipated to decelerate due to base effects, say ING analysts. Headline inflation may drop to 2.6% YoY in October. However, a monthly comparison shows that the current global commodity price rise and lower yen could provide upside pressure.” On Friday, BoJ Governor Ueda predicted inflation will slow, then accelerate, due to corporate wage and price-setting changes. Recent Bloomberg sources said the BoJ is considering revising its FY23 price estimate to 3%, FY24 to 2% or above, and FY25 inflation to 1.6%.

US PCE

Headline PCE is predicted to climb 0.3% M/M from 0.4%, while Core is likely to rise 0.3% from 0.1%. September’s headline CPI grew 0.4% M/M, compared to an expected 0.3%, while core inflation rose 0.3% M/M and slowed to 4.1% Y/Y. Pantheon Macroeconomics claimed this was due to higher electricity prices but is unlikely to last. “The big picture here is that core inflation continues to slow, with the annual rate dipping in September, and the Q3 quarterly annualised gain was only 2.8%.” Pantheon economists expect September’s core PCE deflator to rise 0.27% M/M based on CPI and PPI data. For H1 2024, core inflation is expected to fall significantly. “Our forecast implies the core PCE rose at mere 2.5% annualised rate in the three months to September, compared to the previous three months, the slowest rate since January 2021 and closing in on the target,” it says, adding “the annual rate will remain elevated, dipping to 3.7% from 3.9% in August, but the Fed will not wait until 2% Y/Y is reached before starting to ease.” Personal income and consumption will also be watched to evaluate consumer strength. Income is expected to rise 0.4%, mirroring the prior month’s pace, while consumption is expected to rise 0.3%, down from 0.4%. The data will help measure Fed expectations, but the November decision is projected to leave rates steady as the Fed proceeds slowly and markets almost fully price this in (98% chance). With a 40% chance of another boost by January, a hot report may increase these odds, but a cool report will show the Fed is done raising rates. In contrast to the Fed’s dot plot and higher for longer messaging, the first cut is completely priced in by July further out the curve.

Global Market’s weekly check

WALL STREET

U.S. macro and geopolitical concerns nearly plunge Nasdaq into bear market territory.
Geopolitics, Federal Reserve tough talk, and long-term bond rates rising to 16-year highs weighed on sentiment and sent the S&P 500 Index to its largest weekly drop in a month. The Nasdaq Composite Index ended the week 19.91% below its early-2022 intraday highs, the weakest among the major benchmarks. Similarly, growth stocks underperformed value stocks.

The S&P 500 gained for the 15th straight Monday, boosted by scant Middle East news over the weekend. Increasing tensions later in the week looked to sap advances. Shares sank dramatically on Thursday afternoon after a U.S. Navy destroyer knocked down a cruise missile aimed at Israel. A drone attack on a U.S. site in Iraq also weighed on mood, T. Rowe Price dealers said.

Fed policymakers are “unconvinced” inflation is under control.

Our traders also highlighted that “Fedspeak” that was less dovish than recent policymaker comments may have been involved. Richmond Fed President Thomas Barkin told a Washington real estate conference that he was “still looking to be convinced” that demand was slowing and inflation was cooling. In remarks before the Economic Club of New York on Thursday, Fed Chair Jerome Powell acknowledged “a clear tightening in financial conditions,” but markets pulled back sharply after Powell said he saw no signs that Fed policy would push the economy into a recession.

Upside economic shocks may have fueled concerns that rates may stay “higher for longer.” Retail sales grew 0.7% in October, exceeding consensus projections, according to the Commerce Department on Tuesday. The growth was strongest at online shops and restaurants and bars, indicating robust discretionary spending. However, sales climbed 3.8% in the previous year, matching consumer inflation. Weekly unemployment claims fell below 200,000 for the first time since January.

However, commerce statistics suggested a weaker industrial sector. National industrial production rose 0.3% in September but stayed flat over the previous year (0.8%). Rising rates and a constrained labor supply affected the housing sector. September housing starts were better than predicted, while building permits plummeted 4.4%, the biggest drop in 10 months.

The 10-year U.S. Treasury rate approaches 5% for the first time since 2007.

At the conclusion of the week, the 10-year U.S. Treasury note yield nearly reached 5%, its highest level since July 2007. Bond prices and yields move oppositely. Our traders said the tax-exempt municipal bond market deteriorated alongside Treasuries, with AAA-rated municipal bond yields rising but staying volatile. Along with the Treasury market sell-off, primary issuance was substantial, straining the secondary market. New deals were typically well-received.

The week saw strong issuance from banks in the investment-grade corporate bond market, but spreads only widened marginally. However, Middle East concerns weighed on the high yield market, according to our traders. Below investment-grade funds recorded negative flows due to risk aversion, indicating weakness across grades and industries. Healthy demand for collateralized loan obligations and minimal issuance in the bank loan market seemed to shield it from risk-off sentiment.

Europe

The pan-European STOXX Europe 600 Index fell 3.44% in local currency amid interest rate uncertainty and Middle East conflict fears. A slew of poor earnings reports lowered risk appetite. Every major Continental stock index closed in the red. Italian FTSE MIB declined 3.12%, German DAX sank 2.56%, and French CAC 40 Index fell 2.67%. The UK FTSE 100 fell 2.60%.

Eurozone government bond yields rose as investors considered the possibility of higher interest rates due to persistent inflation. German 10-year government bond yields increased to slightly under 2.9% this week. Italian bond yields rose, reaching 200 basis points over German 10-year notes. The benchmark 10-year government bond yield climbed in the UK after inflation data was unchanged.

The ECB is monitoring oil prices and may keep rates for some time.

ECB President Christine Lagarde, Austrian Robert Holzmann, and Greek Yannis Stournaras warned of inflation danger from rising oil prices caused by Middle East conflict. ECB Chief Economist Philip Lane told a Dutch newspaper that the central bank may need to wait until spring to confirm inflation is back to 2%. Bundesbank President Joachim Nagel agreed with Lane that eurozone price pressures are “too high” and “upside risks are still pretty present.”

UK inflation is high; wage growth significant.

Gasoline costs kept UK inflation at 6.7% in September, which was unexpected. Services inflation rose 6.9%. In the three months through August, salary increase, excluding bonuses, was 7.8%, close to a record high. Before the report was released, BoE Chief Economist Huw Pill said policymakers “still have some work to do” to get inflation to 2%.

German investor confidence rises; French business confidence falls.

According to the ZEW economic institute, German investor confidence rose more than predicted in October due to forecasts of further inflation decreases and stable eurozone short-term interest rates. The national statistics office reported falling company confidence in most French industries in October.

Japan

Japanese stock markets plummeted 3.3% this week, with the Nikkei 225 Index down 3.3% and the TOPIX Index down 2.3%. Despite a minor decrease in inflationary pressure in Japan, wage growth was in focus due to hints of increased pay expectations for next year.

The latest Federal Reserve message signaled that interest rates will remain higher for longer, raising bond yields. The 10-year Japanese government bond yield climbed to 0.83%, its highest level in 10 years, from 0.76% last week. In July, the Bank of Japan (BoJ) relaxed its yield curve management policy, allowing rates to climb but capping them at 1%. The central bank again intervened throughout the week with an unplanned bond-purchase operation to halt yield hikes and avoid significant swings toward its ceiling.

The yen traded near JPY 150 against the U.S. dollar, reaching the mark that many expect Japanese authorities to intervene to stop its decline. The government reiterated its willingness to interfere in currency markets if exchange rates swing too much. Such an enormous swing can hurt the real economy by hurting individuals and businesses if nothing is done.

Wage growth remains a priority as inflation falls but exceeds BoJ aim.

September saw Japan’s core consumer price index rise 2.8% year over year, down from 3.1% in August. However, price hikes exceeded the BoJ’s 2% objective for the 18th straight month, and the BoJ is poised to raise its inflation estimates at its October meeting.

A rise in salary demands for next year could signal shifting wage-setting behavior and increased confidence that the BoJ is approaching its aim. In 2024 “shunto” labor-management talks between unions and employers, Rengo, the Japanese Trade Union Confederation, will want a 5% salary boost. Maintaining wage growth is crucial to attaining the BoJ’s inflation target.

China

China stocks sank dramatically as property sector concerns offset optimism about a better-than-expected GDP report. The Shanghai Composite Index fell 3.4% and the blue chip CSI 300 fell 4.17%, wiping all gains from the reopening rally earlier this year. The Hong Kong Hang Seng Index lost 3.6%, according to FactSet.

Country Garden, once China’s largest property developer, announced it couldn’t pay its offshore debt following a 30-day grace period in August. The company’s missing dollar bond interest payment puts it likely to fail on a dollar bond for the first time and highlights China’s real estate market’s problems. Home price statistics revealed no slowdown in the property market decline. New property prices in 70 of China’s major cities declined 0.3% in September, the third straight month of reductions.

Despite an unexpected robust GDP announcement, China’s economy grew 4.9% in the third quarter over a year earlier, down from 6.3% in the second quarter. Property market concerns overshadowed this. The economy increased 1.3% quarterly, up from 0.5% in the second quarter. Chinese quarterly data better reflect underlying growth than comparisons from a year ago, when key cities were under pandemic lockdown.

Other indicators indicated China’s economy may be stabilizing. Retail sales grew 5.5% in September, up from 4.6% in August, more than forecast. Industrial production growth was flat from August, but urban unemployment declined little.

WEEKLY EARNINGS CALENDAR

Monday Oct 23

Tuesday, OCT 24

Microsoft Corporation MSFT, Alphabet Inc. GOOGL GOOG, Visa Inc. V, The Coca-Cola Company KO, Danaher Corporation DHR, Texas Instruments Incorporated TXN, Verizon Communications Inc. VZ, General Electric Company GE, Raytheon Technologies Corporation RTX.

Wednesday, OCT 25

Meta Platforms, Inc. FB,  Thermo Fisher Scientific Inc. TMO,  T-Mobile US, Inc. TMUS,  International Business Machines Corporation IBM, ServiceNow, Inc. NOW, The Boeing Company BA, Automatic Data Processing, Inc. DP and CME Group Inc. CME.

Thursday, OCT 26

Amazon.com, Inc. AMZN,  Mastercard Incorporated MA, Merck & Co., Inc. MRK, Comcast Corporation CMCSA,  Intel Corporation INTC, Caterpillar Inc. CAT, United Parcel Service, Inc. UPS, Honeywell International Inc. HON, Bristol-Myers Squibb Company BMY.

Friday, OCT 27

Exxon Mobil Corporation XOM,  Chevron Corporation CVX, AbbVie Inc. ABBV.

For details

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