energyinflationWorld News

Take Five: Inflation, energy and earnings

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 6, 2021. REUTERS/Brendan McDermid

Inflation angst and soaring energy prices form the backdrop to the start of third-quarter U.S. earnings season in the coming week.

Annual meetings of the World Bank and International Monetary Fund (IMF) kick off too 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 likely to dominate markets in the coming week:


Some of the world’s biggest banks kick off U.S. earnings, just as investors fret over inflation, surging energy prices and the upcoming tapering of the Federal Reserve’s $120 billion monthly stimulus.

Banks smashed profit estimates in the second quarter as the economy rebounded, with Wells Fargo (NYSE:), Bank of America Corp (NYSE:), Citigroup (NYSE:) and JPMorgan Chase (NYSE:) posting a combined $33 billion in profits.

That momentum likely slowed in the third quarter; earnings for financials are forecast to grow by 17.4%, versus nearly 160% in Q2, according to I/B/E/S data from Refinitiv.

Wider earnings are expected to grow by 29.4%, putting them on track to outpace those of the financial sector for the first time in five quarters. BlackRock (NYSE:) and JPMorgan report Wednesday; Bank of America, Wells Fargo, Morgan Stanley (NYSE:) and Goldman Sachs (NYSE:) later in the week.

Graphic: Earnings growth: Financials vs S&P 500 –


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

    Thursday’s factory gate prices for September are in focus after surging to 13-year peaks in August on soaring raw material costs. Those costs have only gone up since, including ever-higher coal prices. The government is rationing power to heavy industry, causing factory output to contract.

    The crisis is fanning worries about a slowdown, given contagion risks from Evergrande’s debt woes and Beijing’s crackdown on tech firms.

    While the impact is being felt as far as Wall Street, China’s neighbours and biggest trading partners may bear the brunt.

Graphic: China thermal coal prices surge on strong power demand, tight mine supplies –


The great and good of central banking, finance and politics come together at the annual World Bank and IMF meetings from Monday.

There’s plenty to chew over: The global lender will unveil its new economic projections, plans to redistribute $650 billion of SDRs – the IMF’s own currency – to help poorer nations, while Ireland has dropped its opposition to overhauling global tax rules

But the elephant in the room is the future of IMF chief Georgieva after claims she pressured World Bank staff to alter data to favour China, while in her previous role.

The allegations – firmly rejected by Georgieva – will cast a cloud over the fund’s initiatives to aid the world’s post-pandemic recovery.

Graphic: Largest SDR allocations in USD terms –


As Britain’s economy shows signs of slowing amid rising prices, supply chain disruptions and staff shortages, upcoming data releases will grab attention.

On Tuesday, the September unemployment count is published, with August unemployment rates and wage data. August gross domestic product data is released on Wednesday, alongside industrial and manufacturing numbers.

Markets are betting the Bank of England will join its peers and raise interest rates in February. But while British gilt yields have surged, the expectations have done nothing to lift sterling.

Graphic: UK economy loses steam as post-lockdown shortages mount –


Funds rebalancing portfolios and U.S. banks rushing to meet cash reserve rules tend to lift the dollar towards the end of each year. This year there are even more sources of support.

First, the Fed looks set to taper stimulus. “Real” U.S. yields — adjusted for inflation — are deeply negative, but at -0.9%, compare favourably to Germany’s -1.9%. With the ECB in no rush to tighten policy, the gap could widen.

Second as economic growth moderates, stocks have fallen and boosted demand for safer assets including the dollar. The rally in commodities, traded mainly in dollars, is another inducement to buy the greenback.

Unsurprisingly, the premium to access greenbacks is rising; euro-dollar three-month swap spreads are around 16 basis points, more than double end-September levels.

Headwinds? Markets could “sell the fact” once tapering happens. Another risk is the debt ceiling deadline, kicked out to Dec 3; a default while unlikely, could prove catastrophic. But even then, the dollar could catch a bid, as it did in 2008.

Graphic: Dollar swaps –

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