Outlook: the week beginning 16th October.
In the latest #TradewithDave update we look back at last week’s big events, and consider what’s happening in the week beginning 16th October.
Q3 earnings season gets underway
• Last Friday saw the unofficial start to the third quarter earnings season with results from JP Morgan, Citigroup, Wells Fargo, BlackRock and United Health.
• The banking giants posted positive earnings reports, as did United Health. BlackRock also posted strong earnings per share, but missed on revenues.
• Once again, investors are looking for reassurance that financial institutions are coping with tighter monetary policy, particularly the smaller regional banks, and those with a large exposure to commercial real estate.
Inflation updates
• Last week we got two important updates on US inflation data in the form of the Producer Price Index (PPI) and the Consumer Price Index (CPI).
• The PPI is a measure of wholesale inflation, and while it doesn’t get the headlines in the way that the CPI does, it can work as a forward indicator in terms of how inflation filters down from producers to consumers.
• Unfortunately, Wednesday’s PPI came in well above expectations, although this was brushed off by equity traders.
• On Thursday we had a mixed CPI report. Looking at the year-on-year data, Core CPI, which excludes food and energy, came in at +4.1%, as expected, and below last month’s reading of +4.3%.
• This means that the downward trend in Core inflation since September last year, continues.
• As far as Headline CPI is concerned, this was unchanged from last month at +3.7%, and was a tad higher than the +3.6% expected.
• Headline CPI hit a low of +3.0% in June, from a peak of +9.1% one year earlier. But since then it has picked up, due to continued increases in food and energy.
• Wednesday saw the S&P 500 attempt to break above 4,400 but failed at its first attempt. The index has fallen quite sharply since then.
BP gaps higher
• On Friday, BP gapped higher on the open to trade above 549 pence, over 2% up on the day. The same time last week it briefly traded below 490.
• The stock has staged an impressive recovery over the last three years after falling below 200 pence in October 2020.
• But the share price has struggled, ever since it hit a multi-year high around 570 pence back in February.
• BP has been hit by a succession of lurid stories leading its CEO, Bernard Looney, to step down, along with its most senior US executive, Dave Lawler. Is confidence returning?
🔸 Looking ahead to next week
Divergent opinions on the FOMC
• There appears to be a healthy difference of opinion developing between members of the US Federal Reserve’s FOMC.
• Last Wednesday, Michelle Bowman stated that the Fed had made good progress in bringing down inflation
• But continued tightness in the labour market, along with robust consumer spending, meant that further rate hikes were required to bring inflation down further.
• However, her view contrasts with that of Lori Logan and some other FOMC members.
• Ms Logan feels that the sharp rise in US Treasury bond yields, of all durations, is doing the Fed’s job for them.
• As markets adjust to higher borrowing costs, this could negate the need for the Fed to raise rates further.
• This is an important debate, and one to keep an eye on ahead of the next FOMC meeting on 31 October/01 November.
• In the 10 days to last Friday, the yield on the 10-year US Treasury note dropped 26 basis points from a 16-year high of 4.88%.
Gold’s reemergence
• At the end of the first week of October, gold was testing an area of support just a touch north of $1,800.
• This area had held up prices in February and March this year, and had acted as significant resistance back in August 2022.
• As it traded sideways in a band between $1,830 and $1,810 the MACD on the four-hour chart began to turn up.
• Soon after, the MACD on the daily chart also turned higher.
• Since then gold has had a decent rally which has taken it above $1,880.
• Where next for the yellow metal?
This week’s Q3 earnings
Monday:
Texas Instruments, Rio Tinto.
Tuesday:
Bank of America, Goldman Sachs, Bank of New York Mellon, United Airlines, Johnson & Johnson.
Wednesday:
Tesla, Procter & Gamble, Netflix, Morgan Stanley, Travelers, Alcoa.
Thursday:
AT&T, Diageo, CSX Corp, Nokia, Taiwan Semiconductor Manufacturing Company, American Airlines.
Friday:
American Express, Schlumberger, Las Vegas Sands.
Q3 earnings season gets underway
• Last Friday saw the unofficial start to the third quarter earnings season with results from JP Morgan, Citigroup, Wells Fargo, BlackRock and United Health.
• The banking giants posted positive earnings reports, as did United Health. BlackRock also posted strong earnings per share, but missed on revenues.
• Once again, investors are looking for reassurance that financial institutions are coping with tighter monetary policy, particularly the smaller regional banks, and those with a large exposure to commercial real estate.
Inflation updates
• Last week we got two important updates on US inflation data in the form of the Producer Price Index (PPI) and the Consumer Price Index (CPI).
• The PPI is a measure of wholesale inflation, and while it doesn’t get the headlines in the way that the CPI does, it can work as a forward indicator in terms of how inflation filters down from producers to consumers.
• Unfortunately, Wednesday’s PPI came in well above expectations, although this was brushed off by equity traders.
• On Thursday we had a mixed CPI report. Looking at the year-on-year data, Core CPI, which excludes food and energy, came in at +4.1%, as expected, and below last month’s reading of +4.3%.
• This means that the downward trend in Core inflation since September last year, continues.
• As far as Headline CPI is concerned, this was unchanged from last month at +3.7%, and was a tad higher than the +3.6% expected.
• Headline CPI hit a low of +3.0% in June, from a peak of +9.1% one year earlier. But since then it has picked up, due to continued increases in food and energy.
• Wednesday saw the S&P 500 attempt to break above 4,400 but failed at its first attempt. The index has fallen quite sharply since then.
BP gaps higher
• On Friday, BP gapped higher on the open to trade above 549 pence, over 2% up on the day. The same time last week it briefly traded below 490.
• The stock has staged an impressive recovery over the last three years after falling below 200 pence in October 2020.
• But the share price has struggled, ever since it hit a multi-year high around 570 pence back in February.
• BP has been hit by a succession of lurid stories leading its CEO, Bernard Looney, to step down, along with its most senior US executive, Dave Lawler. Is confidence returning?
🔸 Looking ahead to next week
Divergent opinions on the FOMC
• There appears to be a healthy difference of opinion developing between members of the US Federal Reserve’s FOMC.
• Last Wednesday, Michelle Bowman stated that the Fed had made good progress in bringing down inflation
• But continued tightness in the labour market, along with robust consumer spending, meant that further rate hikes were required to bring inflation down further.
• However, her view contrasts with that of Lori Logan and some other FOMC members.
• Ms Logan feels that the sharp rise in US Treasury bond yields, of all durations, is doing the Fed’s job for them.
• As markets adjust to higher borrowing costs, this could negate the need for the Fed to raise rates further.
• This is an important debate, and one to keep an eye on ahead of the next FOMC meeting on 31 October/01 November.
• In the 10 days to last Friday, the yield on the 10-year US Treasury note dropped 26 basis points from a 16-year high of 4.88%.
Gold’s reemergence
• At the end of the first week of October, gold was testing an area of support just a touch north of $1,800.
• This area had held up prices in February and March this year, and had acted as significant resistance back in August 2022.
• As it traded sideways in a band between $1,830 and $1,810 the MACD on the four-hour chart began to turn up.
• Soon after, the MACD on the daily chart also turned higher.
• Since then gold has had a decent rally which has taken it above $1,880.
• Where next for the yellow metal?
This week’s Q3 earnings
Monday:
Texas Instruments, Rio Tinto.
Tuesday:
Bank of America, Goldman Sachs, Bank of New York Mellon, United Airlines, Johnson & Johnson.
Wednesday:
Tesla, Procter & Gamble, Netflix, Morgan Stanley, Travelers, Alcoa.
Thursday:
AT&T, Diageo, CSX Corp, Nokia, Taiwan Semiconductor Manufacturing Company, American Airlines.
Friday:
American Express, Schlumberger, Las Vegas Sands.
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