Corporate Earnings News
Global market indices
Currencies
Cryptocurrencies
Fixed Income
Commodity sector news
Key data to move markets
Global macro updates
Corporate Earnings News
Corporate earning calendar 24 October- 30 October 2024
Thursday: Keurig Dr Pepper, Northrop Grumman, Edwards Lifesciences Corp., Hasbro, Honeywell, UPS, Valero Energy
Friday: Aon, Colgate-Palmolive, Centene Corp.
Monday: ON Semiconductor, Ford Motor Company, Waste Management Inc.
Tuesday: Alphabet, Advanced Micro Devices, McDonald’s Corporation, Mondelez, PayPal Holdings, Pfizer, Snap Inc., Visa Inc.
Wednesday: Meta Platforms, Microsoft, Abbvie, Airbnb, Amgen, ADP, Caterpillar, Eli Lilly & Co., Etsy, Fiverr International, Kraft Heinz, Booking Holdings, Coinbase Global, MicroStrategy, Teladoc Health, Hess Corporation, eBay
Global market indices
US Stock Indices Price Performance
Nasdaq 100 +1.61% MTD +21.14% YTD
Dow Jones Industrial Average +1.41% MTD +13.89% YTD
NYSE +0.40% MTD +16.27% YTD
S&P 500 +0.61% MTD +21.54% YTD
The S&P 500 is -0.77% over the past week, with 6 of the 11 sectors down MTD. The Equally Weighted version of the S&P 500 posted a -1.50% loss this week, its performance is -0.25% MTD and +13.25% YTD.
The S&P 500 Financials sector is the leading sector so far this month, up +3.86% MTD and +25.05% YTD, while Consumer Discretionary is the weakest at -3.30% MTD and +9.47% YTD.
This week, Information Technology outperformed within the S&P 500 at +0.28%, followed by Utilities and Consumer Staples at -0.12% and -0.25%, respectively. Conversely, Consumer Discretionary underperformed at -2.27%, followed by Health Care and Industrials, -1.90% and -1.81%, respectively.
US equities experienced a broad decline on Wednesday, with all three major indexes recording their steepest losses in weeks. This downturn was fueled by a combination of factors: mixed corporate earnings reports, disappointing outlooks from several prominent companies, and rising bond yields driven by positive economic data.
The technology-heavy Nasdaq Composite led the retreat at -1.6%. The Dow Jones Industrial Average shed 410 points, or -1%, while the S&P 500 was -0.9%. This marked a significant pullback after a period of sustained gains, jeopardising what could have been the seventh consecutive week of advances for the major indexes.
Over the past week, several high-profile companies reported earnings that fell short of investor expectations. Boeing announced a substantial quarterly loss of $6.2 billion, its largest since the onset of the COVID-19 pandemic, and its CEO highlighted the need for a cultural shift and resolution of labour disputes, as 64% of factory workers voted to reject the latest offer on Wednesday afternoon, a setback to Boeing’s efforts to get operations back on track. Coca-Cola reported weaker-than-expected sales, attributed by some analysts to price increases, while Starbucks suspended its guidance for the next fiscal year and announced a strategic overhaul.
Conversely, AT&T exceeded earnings forecasts, driving its shares higher despite a significant impairment charge related to its business-wireline unit.
Macroeconomic factors also contributed to the market downturn. Positive US economic data has led investors to reassess their expectations of the Fed’s monetary easing pace, pushing bond yields higher and diminishing the relative attractiveness of equities.
In corporate news, Spirit Airlines is reportedly engaged in discussions with Frontier Group regarding a potential bankruptcy filing that would pave the way for an acquisition by the rival discount carrier. Additionally, the proposed $35 billion acquisition of Discover Financial Services by Capital One Financial is facing scrutiny from the New York Attorney General, who cited concerns about the deal's potential impact on consumers.
US stocks
Mega caps: A mostly negative week for the ‘Magnificent Seven’. Alphabet -1.44%, Amazon -1.17%, Apple -0.44%, Meta Platforms -2.27%, Microsoft +2.04%, Nvidia +2.83%, and Tesla -3.47%.
Tesla Q3 earnings. The company reported a net income of $2.2 billion for Q3, a 17% increase y/o/y. This strong performance was largely attributed to higher sales of regulatory credits to other automakers and the continued strength of Tesla's energy business.
Global deliveries also rose during Q3, contributing to an 8% increase in revenue, which reached $25.2 billion. While CEO Elon Musk has not established a specific sales growth target for the current year, he expressed optimism for 2025, projecting a 20% to 30% increase in vehicle deliveries. This would represent a significant acceleration compared to 2024, which has seen global deliveries decline by nearly 6% through the first three quarters.
In a notable strategic shift, Musk confirmed the company's decision to abandon plans for a highly anticipated $25,000 electric car. Instead, Tesla will focus on introducing lower-cost versions of its existing models, with prices anticipated to fall below $30,000 after subsidies. These more affordable vehicles are expected to launch in the first half of 2025.
Tesla's Q3 results were further bolstered by strong performance in its energy business and robust sales of regulatory credits. Revenue from regulatory credits reached its second-highest level in the company's history. These credits, which represent pure profit for Tesla, are purchased by other automakers to comply with emissions standards. The energy business also achieved a record gross margin of 30.5%, effectively offsetting the impact of price reductions implemented for several Tesla models.
Tesla's operating margin reached 10.8%, an improvement from 7.6% in the same period last year. Looking ahead, Tesla plans to invest over $10 billion in CapEx this year, with a focus on expanding its data centres and enhancing its software capabilities. These investments are integral to Tesla's autonomous driving technology.
Energy stocks had a negative week, as the Energy sector itself was -0.41% due to concerns around Chinese demand and oversupply. However, oil prices are up almost 4% this week following last week’s 9% drop as concerns around Middle East supplies have come to the forefront. The Energy sector’s YTD performance is +8.09%. Over the week Chevron +1.18%, Baker Hughes +0.71%, Shell +0.28%, Occidental Petroleum +0.12%, while ExxonMobil -0.32%, ConocoPhillips -0.62%, Apa -1.25%, Phillips 66 -2.41%, Marathon Petroleum -2.62%, Energy Fuels -2.77%, and Halliburton -5.09%.
Baker Hughes Q3 earnings. Baker Hughes delivered a strong Q3 performance, exceeding earnings expectations while navigating a dynamic market. The company announced EPS of $0.67, excluding special items, surpassing the FactSet estimate of $0.61. This result was achieved despite revenue coming in below projections at $6.91 billion compared to an anticipated $7.21 billion. Adjusted EBITDA reached $1.21 billion, slightly exceeding the FactSet estimate of $1.20 billion. However, orders showed a y/o/y decline of 22%, reaching $6.68 billion compared to $8.51 billion in the same period last year.
Looking ahead, Baker Hughes anticipates global upstream spending in 2025 to mirror 2024 levels. The company projects total EBITDA of $1.26 billion in Q4 2024, with $590 million attributed to Industrial & Energy Technology (IET) and $750 million to Oilfield Services & Equipment (OFSE). For FY 2024, Baker Hughes expects IET orders between $11.5 billion and $13.5 billion, with IET EBITDA reaching $2 billion and OFSE EBITDA at $2.87 billion.
During the earnings call, Baker Hughes highlighted several key areas of focus. The company expects growth in gas technology services revenue, driven by long-term contracts and high attachment rates, particularly in the LNG sector. Margin improvement in 2025 will be fueled by cost efficiencies, productivity gains, and supply chain optimisations. Furthermore, Baker Hughes anticipates revenue growth to outpace the 20% increase in its installed base by 2030, thanks to higher pricing and advanced service solutions.
Despite lower LNG equipment orders, IET orders for 2024 remain on track with guidance, supported by a diverse portfolio that ensures robust order intake. Finally, Baker Hughes anticipates an acceleration in the pace of LNG project final investment decisions (FIDs) in 2025, assuming the resolution of the US LNG moratorium, leading to a positive outlook for gas turbine equipment orders.
Materials and Mining stocks had a negative week, as the Materials sector was -1.43%, bringing the sector’s YTD performance to +12.05%. Sibanye Stillwater +10.23%, Newmont Corporation +2.61%, and Mosaic +1.57%, while Freeport-McMoRan -0.10%, CF Industries -0.48%, Albemarle -4.37%, Yara International -4.72%, and Nucor -8.17%.
Nucor Q3 earnings. Nucor released its Q3 earnings report on Monday, 21st October. While exceeding revenue expectations with $7.44 billion against an anticipated $7.28 billion, the company fell slightly short on EPS, reporting $1.49 per share excluding special items compared to the projected $1.50. Despite this, Nucor surpassed EBITDA predictions with $869 million against an expected $862.7 million.
Looking ahead to the fourth quarter, Nucor anticipates a decline in consolidated net EPS from the $1.05 reported in Q3. This projection, shared during their earnings call, stems from anticipated lower steel mill earnings due to decreased pricing and volumes, and a similar trend in the steel products segment. However, the raw materials segment is expected to show moderately higher earnings.
Nucor also provided key updates during the call. Their Brandenburg facility continues its successful ramp-up, achieving record production and bookings, particularly for specialised plate offerings like wide plates used in bridge construction. The company expressed optimism that lower interest rates after the US election, coupled with clearer fiscal policies, will stimulate steel demand. While government initiatives such as the IRA and CHIPS Act are expected to drive infrastructure spending, their significant impact on order books is yet to be fully realised.
Despite lower anticipated volumes in Q4, Nucor expects steel conversion costs to decrease due to higher utilisation and reduced startup costs. The company remains focused on strategic investments in coated products, aiming to meet evolving customer demands and regional needs through 2027.
Freeport-McMoRan Q3 earnings. Freeport-McMoRan exceeded expectations in its Q3 earnings report released on Tuesday, 22nd October. The company reported earnings per share of $0.38, excluding special items, surpassing the FactSet estimate of $0.37. This performance was driven by robust revenue of $6.79 billion, which also beat predictions of $6.45 billion. Operating income reached $1.94 billion, nearly matching the projected $1.93 billion.
During the earnings call, Freeport-McMoRan outlined key priorities and updates. The company plans to invest $4.2 billion in CapEx in 2025 and anticipates a reduction in North American mining costs compared to 2024 levels. Share repurchases will continue into Q 2025.
Freeport-McMoRan also highlighted progress on several strategic initiatives. Their leach initiative is on track to achieve a scale of 300 - 400 million pounds per annum by 2026, while investments in the Bagdad project aim to de-risk its overall development in 2025. The Atlantic Copper Recycling project is expected to commence production by the end of next year.
Addressing recent challenges, the company confirmed that insurance will cover repairs for the Indonesia smelter fire, although business interruption is not included. Freeport-McMoRan is actively seeking government flexibility for 2024 exports to mitigate the impact.
Further updates included the strategic increase in their stake in Cerro Verde, with the company open to further purchases should opportunities arise. Discussions regarding the IUPK extension are ongoing with the new Indonesian government following delays caused by the presidential transition. Finally, a pre-feasibility study for Safford/Lone Star is exploring significant resource expansion potential, aiming to leverage existing infrastructure and community support to drive operational growth.
European Stock Indices Price Performance
Stoxx 600 -0.77% MTD +8.32% YTD
DAX +0.27% MTD +15.68% YTD
CAC 40 -1.81% MTD -0.61% YTD
IBEX 35 -0.10% MTD +17.45% YTD
FTSE MIB +2.43% MTD +15.17% YTD
FTSE 100 +0.99% MTD +7.56% YTD
This week, the pan-European Stoxx Europe 600 index was -0.15%, closing at 518.84. It was -0.30% on Wednesday.
In the STOXX Europe 600, Travel & Leisure is the leading sector so far this month, up +2.48% MTD and +6.87% YTD, while Basic Resources is the weakest at -5.84% MTD and -6.87% YTD.
This week Technology outperformed within the STOXX Europe 600 with a +1.84% gain, followed by Autos & Parts and Travel & Leisure at +1.26% and +0.95%, respectively. Conversely, Insurance underperformed at -2.19%, followed by Retail and Utilities, -1.99% and -1.74%, respectively.
Germany's DAX index was -0.23% on Wednesday and closed at 19,377.62. It was -0.28% for the week. France's CAC 40 index was -0.50% on Wednesday, closing at 7,497.48. It was +0.07% for the week.
The UK's FTSE 100 index was -0.85% this week to 8,258.64. It was -0.58% on Wednesday.
On Wednesday, the automotive sector emerged as the strongest performer, driven by Stellantis' strategic expansion of its truck plant in Mexico to alleviate production constraints at its US facility. Conversely, Volvo tempered enthusiasm by exceeding Q3 operating profit expectations but subsequently reducing its sales guidance, citing industry-wide pressures.
Utilities demonstrated robust performance, propelled by Iberdrola's Q3 report, which revealed a 50% increase in net profit and projected full-year net income, excluding capital gains from asset rotation, of approximately €5.5 billion. However, the sector faces potential headwinds as the Spanish government is reportedly contemplating an expanded windfall tax on energy companies.
The Financial sector experienced the most significant decline, with Deutsche Bank in focus after an increase in loan loss provisions overshadowed better-than-expected Q3 results. Despite this, the bank affirmed its trajectory towards achieving its 2024 revenue guidance of approximately €30 billion, slightly surpassing the FactSet consensus estimate of €29.55 billion. Lloyds Banking Group outperformed expectations with its Q3 profit, citing growing financial confidence among its customer base and reaffirming its full-year 2024 guidance.
Basic resources also faced substantial declines, following SSAB reporting a smaller-than-anticipated drop in its Q3 operating profit. The Chemical sector experienced a sharp downturn, with Akzo Nobel falling short of Q3 sales and core profit forecasts, attributing the underperformance to weakened consumer demand.
Personal and Household Goods were negatively impacted by L'Oréal missing Q3 sales estimates due to sluggish demand in China, while Reckitt Benckiser posted a decline in Q3 sales, primarily attributed to weakness in its nutrition division.
Other Global Stock Indices Price Performance
MSCI World Index -0.68% MTD +16.67% YTD
Hang Seng -1.77% MTD +21.78% YTD
This week, the Hang Seng Index was +2.33%, while the MSCI World Index was -1.01%.
Currencies
EUR -3.16% MTD -2.29% YTD to $1.0782
GBP -3.37% MTD +1.50% YTD to $1.2982
The euro was -0.74% against the USD over the past week, while the British pound was -0.59%. The Dollar Index was +0.80% this week, +3.05% MTD, and +3.62% YTD, settling at 104.42.
On Wednesday, the US dollar reached a three-month high against the Japanese, surpassing the 153 yen mark. This surge is attributed to continued US economic strength and an anticipated divergence in the pace of interest rate cuts among major global central banks.
Current market expectations, as reflected by CME's FedWatch Tool, indicate an 93% probability of a 25 bps rate cut at the FOMC's November meeting, with a 7% chance that the central bank will maintain its current policy stance.
The dollar is currently poised for its fourth consecutive week of gains, underscoring its persistent strength. The US dollar index rose +0.33% on Wednesday to 104.42, having reached 104.57 earlier in the session, its highest level since 30th July.
The euro depreciated by -0.16% to $1.0782, after falling to $1.0760, its lowest point since 3rd July. The British pound also weakened, -0.55% to $1.2908.
Against the Japanese yen, the dollar exhibited significant strength, +1.13% to reach ¥152.75. This marks its most substantial daily percentage gain since 4th October and follows an earlier climb to ¥153.18, its highest level since 31st July, when the BoJ adjusted interest rates to their highest level since 2007 at 0.10%.
These currency movements coincide with Japan's upcoming general election scheduled for 27th October. Recent opinion polls suggest that the ruling Liberal Democratic Party, along with its coalition partner Komeito, may lose their parliamentary majority. The potential emergence of a minority coalition government raises concerns about political instability, which could complicate the BoJ's efforts to reduce the nation's reliance on monetary stimulus measures.
Note: As of 5:30 pm EDT 23 October 2024
Cryptocurrencies
Bitcoin +5.07% MTD +58.13% YTD to $66,402.
Ethereum -3.41% MTD +9.09% YTD to $2,504.70.
It was a negative week for the two major cryptocurrencies. Bitcoin -1.80% over the week, while Ethereum was -4.02%. The “Trump” trade on crypto seems to be dissipating with concerns over the larger macro picture taking precedence. Growing expectations that the Fed will move rate cuts at a slower pace as the US economy continues to show strength has led to dollar strengthening as yields have risen and equities have fallen. This has highlighted the interconnectedness between cryptocurrencies and traditional financial markets With less than two weeks to the US elections and the polls indicating that Trump and Harris are virtually tied, investors also appear to be growing a bit more wary about the potential impact given that it will have far-reaching consequences for the crypto regulatory space globally.
Separately Ethereum’s high transaction fees appear to be disincentivizing activity on the blockchain according to Onchain data. This reduces the demand for Ethereum staking and could be, as noted by Cointelegraph, damping investor optimism.
Note: As of 5:30 pm EDT 23 October 2024
Fixed Income
US 10-year yield +48.9 bps MTD +36.2 bps YTD to 4.243%.
German 10-year yield +17.6 bps MTD +30.2 bps YTD to 2.311%.
UK 10-year yield +22.8 bps MTD +66.8 bps YTD to 4.207%.
US Treasury 10-year bond yields are +22.5 basis points (bps) this week. This week's yield surge can be partially attributed to the increasing likelihood of a Trump victory. His policy stances, including the implementation of tariffs and stricter immigration measures, are perceived as potential catalysts for inflationary pressures. Furthermore, investors are exhibiting a degree of caution, preferring to remain on the sidelines until the election outcome and the resulting congressional composition provide greater clarity on the fiscal outlook.
Heightened uncertainty surrounding the upcoming US presidential election on 5th November, coupled with investor anticipation of a less accommodative Fed in light of robust economic conditions, propelled 10-year Treasury yields +2.9 bps to a three-month high on Wednesday. Yields on the 10-year Treasury reached 4.243%, having touched 4.260% earlier in the session – a level last witnessed on 26th July. Similarly, yields on the 2-year note were +4.7 bps to 4.084%, marking their highest point since 10th October and representing a +15.1 bps increase from last week’s 3.933%.
Current market expectations, as reflected by the CME's FedWatch Tool, indicate a 67.1% probability of a 25 bps rate cut at both the FOMC's November and December meetings. The likelihood of a rate cut at only one of these meetings stands at 30.2%, while the probability of maintaining rates at current levels through year-end is 2.7%.
This week's US economic data releases are relatively limited. Investors are awaiting Thursday's PMI numbers and Friday’s nondefense capital goods, which will offer insights into the health of the consumer sector.
The Fed's Beige Book, a qualitative assessment of economic conditions across the twelve Fed Districts, reported minimal change in US economic activity from September through early October, while also noting an increase in hiring activity.
The Treasury Department encountered subdued demand for a $13 billion auction of 20-year bonds. The bonds were issued at a high yield of 4.59%, approximately 1.5 bps above their pre-auction trading level. The bid-to-cover ratio reached 2.59x, the highest level since July.
Looking ahead, the government is scheduled to auction $24 billion in five-year TIPS on Thursday.
The German 10-year yield was +12.4 bps this week, while the UK 10-year yield was +13.9 bps this week. The spread between US 10-year Treasuries and German Bunds currently stands at 193.2 bps, 10.1 bps higher from last week’s 183.1 bps.
Italian bond yields, a benchmark for the eurozone periphery, were +12.4 bps this week to 3.531%. Consequently, the spread between Italian and German 10-year yields remained unchanged at 122.0 bps.
The spread between French and German 10-year yields, a key indicator of the risk premium investors demand to hold French government bonds, widened slightly to 73.5 basis points from 72.6 basis points recorded last week.
Investor anticipation of an accelerated monetary easing cycle by the ECB drove German two-year government bond yields lower on Wednesday. Germany's two-year bond yield, recognised for its sensitivity to ECB rate expectations, was -6 bps to 2.144%.
However, Germany's 10-year yield experienced a more moderate decrease of -1 bps, settling at 2.311%, after increasing by over +13 bps in the preceding two trading sessions.
Italian 10-year yields also exhibited a downward trend, decreasing by 2.6 bps to 3.531% on Wednesday.
Capitalising on a recent outlook upgrade from Fitch Ratings, Italy generated extraordinary demand for its latest bond offering on Tuesday. The Treasury attracted a record €200 billion in orders for two new bonds, a testament to renewed investor confidence in the nation's fiscal prospects.
The issuance comprises two tranches: €10 billion in 7-year bonds and €3 billion in 30-year bonds.
Commodities
Gold spot +2.97% MTD +31.61% YTD to $2,714.40 per ounce.
Silver spot +7.72% MTD +40.68% YTD to $33.89 per ounce.
West Texas Intermediate crude +4.33% MTD -0.22% YTD to $71.12 a barrel.
Brent crude +4.90% MTD -2.38% YTD to $75.16 a barrel.
Spot gold prices are up +1.51% this week. Gold prices were -1.07% on Wednesday to reach $2,717.75 per ounce, after having climbed to an all-time high of $2,758.37 earlier in the trading session. This decline was driven by a strengthening US dollar and rising US Treasury yields, which offset safe-haven demand.
Oil prices were down on Wednesday, with major crude benchmarks, Brent and WTI -0.38% and -0.63% respectively.
Oil prices experienced a decline on Wednesday following the release of data revealing a larger-than-anticipated increase in US crude inventories. This build-up, coupled with a strengthening US dollar, exerted downward pressure on oil prices. However, persistent concerns surrounding potential supply disruptions stemming from the ongoing conflict in the Middle East provided a degree of price support, resulting in futures contracts maintaining a roughly +2% gain for the week.
This recent price volatility follows a period of significant fluctuation in the oil market. Last week, oil prices fell more than 7% due to concerns about weakening demand from China and easing anxieties regarding potential disruptions to Middle East oil supplies. However, the first two trading sessions of this week saw a rebound in oil prices.
EIA: rising imports drive increase in US crude oil stocks. Data released by the Energy Information Administration (EIA) on Wednesday revealed a significant increase in US crude oil inventories last week, driven by higher imports. Crude stocks surged by 5.5 million barrels to reach 426 million barrels in the week ending 18th October, exceeding market expectations.
This build-up in crude inventories occurred despite a rebound in refinery activity. Refinery crude runs increased by 329,000 barrels per day (bpd), and refinery utilisation rates rose for the second consecutive week after a five-week period of declines. Utilisation rates climbed by 1.8 percentage points to reach 89.5% of total capacity, indicating a gradual recovery from peak refinery maintenance earlier in the month.
Gasoline stocks also exhibited an unexpected increase, rising by 900,000 barrels to 213.6 million barrels. This rise in gasoline inventories is attributed to increased refinery output.
Conversely, distillate stockpiles, which encompass diesel and heating oil, decreased by 1.1 million barrels to 113.8 million barrels.
The release of this EIA data prompted a further decline in both US crude and Brent futures prices, which had already been experiencing downward pressure.
Furthermore, net US crude imports increased by 913,000 bpd to 2.3 million bpd, while exports declined by 11,000 bpd to 4.11 million bpd. Crude stocks at the Cushing, Oklahoma, delivery hub experienced a decrease of 346,000 barrels.
Note: As of 5:30 pm EDT 23 October 2024
Key data to move markets
EUROPE
Thursday: German HCOB Composite, Services, and Manufacturing PMIs, Eurozone Composite, Services, and Manufacturing PMIs, and German Bundesbank Monthly Report.
Friday: German Ifo Business Climate, Current Assessment, and Expectations Surveys.
Sunday: Daylight Savings Ends
Tuesday: German Gfk Consumer Confidence Survey,
Wednesday: French, Spanish, and German GDP, Spanish Harmonised Index of Consumer Prices, German Unemployment Change and Unemployment Rate, Eurozone GDP, Eurozone Business Climate, Eurozone Consumer Confidence, and Eurozone Economic Sentiment Indicator, German CPI, and German Harmonised Index of Consumer Prices.
UK
Thursday: S&P Global/CIPS Composite, Manufacturing and Services PMIs, speeches by BoE Catherine Mann and Governor Andrew Bailey, BoE Monetary Policy Report Hearings, and Gfk Consumer Confidence.
Saturday: Speech by BoE Governor Andrew Bailey.
Sunday: Daylight Savings Ends.
Wednesday: Autumn Forecast Statement.
US
Thursday: Initial and Continuing Jobless Claims, a speech by Cleveland Fed President Beth Hammack, New Home Sales, and S&P Global Composite, Manufacturing, and Services PMIs.
Friday: Durable Goods, Nondefense Capital Goods, Michigan Consumer Sentiment, UoM Michigan 5-year Consumer Inflation Expectation Survey, and a speech by Boston Fed President Susan Collins.
Tuesday: Housing Price Index, Consumer Confidence, and JOLTS Job Openings.
Wednesday: ADP Employment Change, GDP, Core Personal Consumption Expenditures, Personal Consumption Expenditures Prices, and Pending Home Sales.
JAPAN
Thursday: Tokyo CPI.
Monday: Unemployment Rate.
Wednesday: Large Retail Sales and Retail Trade.
CHINA
Thursday: BRICS Summit.
GLOBAL
IMF/World Bank Autumn meeting Monday, 21 October to Saturday, 26 October.
Global Macro Updates
Eurozone inflation concerns spark debate on further ECB easing as US election risks weigh on EUR/USD outlook. A notable shift in sentiment is underway among ECB policymakers, who are increasingly expressing concerns about the prospect of inflation falling below the 2% target. This marks a departure from previous anxieties surrounding excessive price growth. With eurozone inflation currently at 1.7% and economic growth stagnating, central bank governors from France, Portugal, and Finland have cautioned that the current restrictive monetary policy may suppress prices excessively. These policymakers advocate for a more "agile and pragmatic" approach to rate cuts to avoid a delayed response to economic weakness.
The debate within the ECB now centres on whether to lower interest rates below the neutral level to stimulate economic activity. While no formal decision has been reached, and the neutral level remains several months away, this evolving stance has reinforced market expectations of continued policy easing. Current market pricing suggests a 40% probability of a 50 bps rate cut in December.
A detailed analysis of the September inflation data reveals encouraging trends. The m/o/m bottom-up core inflation measure has remained at the target level for three consecutive months. While domestic inflation appears to be more persistent and remains above target, particularly in Germany and Spain, underlying tendencies suggest further improvements are likely, especially within the services sector. The recent inflation data lends credence to the ECB's consecutive rate cuts.
Beyond domestic concerns, European central bankers are also increasingly apprehensive about the potential economic repercussions of a potential Trump victory in the upcoming US election. This apprehension stems primarily from the candidate's proposed tariffs, which could exacerbate inflationary pressures and hinder economic growth in Europe. Analysts warn that a renewed trade war could precipitate a significant economic downturn in the region.
According to Reuters, Goldman Sachs suggests that a victory for Trump could lead to a significant decline in the EUR/USD exchange rate, potentially falling by 10%, below parity. This scenario assumes the implementation of widespread tariffs and tax cuts under a Republican sweep, which could stimulate US inflation and interest rates, implying a stronger divergence between the Fed and the ECB. The firm noted that even a more limited trade war with China could trigger a 3% drop in the euro. Conversely, Goldman Sachs anticipates that a Democratic victory would initially weaken the US dollar.
Bloomberg reports that analysts are currently expressing a bearish outlook on the EUR/USD exchange rate. However, this view is not universally shared. Ossiam and Berenberg suggest that markets may be overly aggressive in discounting ECB easing, given the potential for wage growth and a resurgence of inflation in early 2025. Pantheon Macroeconomics sees scope for a stronger EUR/USD based on inflation, interest rate, and GDP forecasts, although political uncertainty persists as a risk factor. Société Générale highlighted upside risks if macroeconomic data fails to confirm the anticipated Eurozone slowdown.
Fed's Beige Book reports minimal economic change since September. The Fed's latest Beige Book presents a mixed picture of the US economy, with economic activity remaining largely unchanged since early September. While two Districts reported modest growth, most experienced declining manufacturing activity. The banking sector, however, demonstrated stability, showing slight to moderate growth.
Consumer spending exhibited mixed trends, with some consumers opting for less expensive alternatives. The housing market held steady, although lingering uncertainty surrounding mortgage rates continued to deter some potential buyers.
Labour market conditions showed slight improvement, with half of the Districts reporting slight or modest employment growth. Worker availability increased, although demand for labour moderated somewhat.
Inflation continued its downward trend, with most Districts reporting only slight or modest price increases. The report also noted growing price sensitivity among consumers.
The Beige Book's observations of weaker manufacturing activity align with other recent reports, such as the manufacturing PMI, which unexpectedly declined in September. Furthermore, the September ISM Manufacturing report revealed contraction in new orders and employment.
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