Menu de Saison: inflation & earnings

00:00:00: Energy prices, yields and AI concerns are testing market appetite ahead of two catalysts.

00:00:06: U.S.

00:00:06: inflation is the beginning of the third quarter earnings season.

00:00:10: as soon next week with inflation still elevated investors will be looking to see whether earnings.

00:00:20: So welcome to Swiss Couts.

00:00:21: Daily Market Talk, it's the ninth of October.

00:00:25: I'm Ipeko Skardishkeya.

00:00:26: in todays episode we will be talking about what is on the menu before we do and as always please keep in mind that opinions are my own.

00:00:36: this isn't financial advice.

00:00:46: So, crude oil prices and global yields remain the main drivers of the global markets right now.

00:00:51: And that will be changing as soon next week with earnings announcement flowing in.

00:00:56: but yesterday both oil and yields pushed higher initially waiting on major US & European indices although U.S.

00:01:03: Treasury yields later retreated following a strong thirty year bond auction in the US.

00:01:09: But in Europe this stock six hundred tested is two-hundred day moving average to the downside With an increasing likelihood extending losses below this level, while U.S technology heavy indices couldn't hold up as time re-pours on the wire that open AIs annualized revenue run rate was lower than previously indicated hit AI related stocks.

00:01:30: Philadelphia's SMI Conductor Index fell more then three percent yesterday whilst NASDAQ hundred retreated from record high levels which earlier.

00:01:40: Now oil is lower this morning and equities look somehow better bid.

00:01:44: With a relatively light calendar, aside from US consumer sentiment data & Canadian employment data, investors around the world may spend their last trading day of this week without major change in direction.

00:01:57: Now because I will be traveling next week, i wanted to jump directly into what will matter while i'm away.

00:02:03: Because Next Week brings two important Two big test for market appetite One US inflation data and two it'll start off the third quarter earning season.

00:02:15: So if you look throughout next week on Wednesday The U.S Will release a September CPI report And that will follow by producer prices and retail sales data On Thursday.

00:02:26: Now, although the most recent jobs data from the US hinted at some weakness in the payroll growth and wages while inflation remains the main source of pressure on the Fed expectations right now.

00:02:38: Remember October Fed expectations have weakened on the back off soft jobs and soft inflation data recently.

00:02:44: Now energy inflation is likely to remain elevated?

00:02:47: Yes oil and gas prices were volatile during September but what will really matter for Fed expectations next week?

00:02:56: inflationary pressures in the CPI data is broadening beyond energy and whether consumers, in the US keep spending their money on that despite higher borrowing costs.

00:03:08: Well thinking's always the same.

00:03:09: Sticky Inflation combined with strong consumption could strengthen the Fed hogs hand and keep yields under upward pressure and lower weight on equity appetite while softer inflation with resilient spending would be a more comfortable combination for equities.

00:03:25: It would not necessarily change expectations that the Fed should hike its interest rates one more time before this year ends to temper inflationary pressures, provided that growth and jobs market in the US looks healthy enough allow them do so.

00:03:40: But it could reduce urgency of raising the interest rate by some time for the Fed's next move.

00:03:46: And timing is everything with another rate hike before midterm elections likely be politically very sensitive!

00:03:54: Across the Atlantic, euro area inflation numbers will also be closed and monitored next week by euro investors.

00:04:00: But they'll mostly be updates to the preliminary estimates that we already had… And they were looking strong!

00:04:16: Of course, the euro area has started to face a bigger and probably more urgent problem in the short run.

00:04:22: It's just debt crisis.

00:04:23: The tensions appear to be spreading beyond France.

00:04:26: right now.

00:04:27: We see that through widening yields spreads between Germany And several other European countries including Italy Spain Portugal and Greece for example, rising yields and widening spreads will probably tighten financial conditions across the euro area without the European Central Bank raising interest rates.

00:04:47: Further turmoil could therefore soften the European central bank rate hike expectations.

00:04:55: Moving forward, the distinction between why yields are rising will gain importance in this chaotic environment.

00:05:02: US yields have been rising partly on the back of stronger growth expectations.

00:05:06: remember?

00:05:06: Yes yes if you're new to market talk we have frequently discussed how long-term inflation expectations in the U.S had remained relatively contained near the Fed's two percent policy target while real yields were rising and that was supporting Strong growth expectations linked to AI investment, of course.

00:05:26: And also the expansionary fiscal policy from US administration helped explain that move.

00:05:31: alongside concerns about debt supply and compensation investors demand to hold long-term U.S bonds.

00:05:39: In Europe however it's a bit different because concern is about the fiscal outlook or an additional source upward pressure on yields although the growth expectation has been revised higher yesterday for Germany.

00:05:51: Well, the outlook remains well gloomier than what we see in

00:05:55: U.S.,

00:05:55: and obviously that does not have the same positive impact on appetite for the year.

00:06:00: So for the coming days... The rule of thumb is it feels rise because a central bank can hike interest rates.

00:06:07: an economic fundamentals can withstand those hikes.

00:06:10: That tends to support the currency And the US seller is IN this context.

00:06:14: If however yields rise Because of turmoil AND loss of confidence among investors Well, don't be fooled by the higher return.

00:06:23: The euro is rather in disconfiguration.

00:06:26: So in practical terms that means being cautious before rebuilding a long position In this single currency Before making sure your debt worries are gone.

00:06:37: Now on the corporate calendar US banks will kick off the earnings dance next week.

00:06:41: Remember, banks on both sides of the Atlantic Ocean were among the biggest contributors to strong second quarter earnings growth.

00:06:49: Resilient consumer spending massive AI investments including bond and equity issues to help these companies finance a massive AI build out and volatile markets helped explain why banks printed such strong results in the second quarter this year.

00:07:04: A few weeks ago though some banks warned that earning's growth could slow while others reassured investors they weren't track for another strong quarter.

00:07:13: So what will be interesting to watch is whether banks continue to sail with the winds at their backs and whether European banks, due to report their own earnings in the following weeks can calm investors' nerves aiming mounting euro area debt worries that actually hit their stock prices over the past few weeks.

00:07:32: Besides banks TSMC and ASML results will also worth watching next week And there are no signs of slowdown among the big technology buddies investment and spanning plans as we head into The heart-of-the-earning season.

00:07:48: But good results here may not necessarily suffice to boost up prices in Technology.

00:07:54: because look Samsung flagged an almost ninefold increase In its quarterly operating profit yesterday, and TSMC's third quarter sales jumped fifty one percent.

00:08:05: Yet their shares fell on Thursdays trading session despite the Good News.

00:08:09: Still, their contribution to earnings growth could give investors a reason for stability and equities altogether.

00:08:15: This is exactly what happened in the latest earning season!

00:08:19: So broadly, expectations for third quarter earnings are strong.

00:08:23: Analysts expect third-quarter earnings to grow around thirty percent of the S&P five hundred companies and some nineteen percent for European stock six hundred compared with a year ago.

00:08:34: Now obviously we all know that there is catch.

00:08:37: Excluding energy Europe's expected growth falls to about ten per cent.

00:08:42: only That because higher energy prices are boosting producers profits while squeezing other businesses their customers.

00:08:49: And in the

00:08:50: U.S.,

00:08:50: excluding technology, what expected earnings growth for S&P's five hundred companies would be nearly half and falling to seven point four percent if both energy and technology were left out.

00:09:02: So this means that the headlines earning growth relies heavily on a few sectors, And a few companies with relatively small number of companies continue to shoulder much of the major indices performances.

00:09:15: Now again This is nothing new!

00:09:16: That concentration did not prevent major indices from advancing to fresh record high levels last quarter.

00:09:23: So, I will say this before i go.

00:09:25: The big consensus for the coming earnings season is that if headline earnings growth remains strong enough investors can postpone worrying about rising yields a little longer.

00:09:37: now the brother that growth is the more reassuring it will be for global risk appetite.

00:09:43: but with rising energy and borrowing costs bro the growth may not beyond money decision.

00:09:49: So this is all for the week.

00:09:50: Remember, I will be traveling next week so i won't see you before Monday.

00:09:55: After next week, I'm Yipee Pekka Skardishke and thank you for joining me.

00:09:59: And Thank You For All Your Beautiful And Supportive Comments & Contributions To These Episodes!

00:10:04: I Hope This Episode Of Market Talk Has Also Been Helpful And It Has Been Insightful to You.

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00:10:34: So I will meet again next week.

00:10:37: Until then good luck trading.

00:10:39: have a lovely weekend!

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