The US Energy Sector Has Delivered The Strongest Earnings Growth

US CPI key this week, Fed minutes also due

US inflation data out on Thursday be the next catalyst to test the Fed’s pivot narrative, and the path ahead for US yields and US dollar. Headline inflation is expected to fall slightly but stay above 8%. Bloomberg consensus expectations are at 8.1% y/y from 8.3% y/y in August, but the m/m print is expected higher at 0.2% from 0.1% previously. The core measure is also likely to swell further, and come in at 6.5% y/y from 6.3% in August. While market reaction to CPI print cannot be ignored as pricing for Fed’s path remains volatile, Fed members have been clear about their intent to keep rates high until inflation comes down materially. This suggests that even if we see further rate cut pricing for 2023, we will get a stronger pushback from Fed members and the markets will need to revise their thinking eventually. FOMC meeting minutes will be released on Thursday October 13, from the September 21 meeting and will likely continue to send out hawkish signals.

China’s aggregate financing data is expected to rise in September

China’s New loans, aggregate financing, and money supply data are scheduled to release sometime in this week.  The median forecast of RMB new loans in September as per Bloomberg’s survey is RMB1,800 billion, much above the RMB1,250 billion in August and the RMB1,660 billion a year ago in September 2021. New aggregate financing in September is expected to rise to RMB2,750 billion from RMB2,430 billion in August, but below the RMB2,903 billion in September 2021. The instructions as well as window guidance from the regulators to urge banks to lend to infrastructure projects and industries deemed important to the real economy were likely to have lifted the amount of new loans. 

China’s CPI is expected to rise in September

China is releasing CPI and PPI data on Friday. The median forecast in the Bloomberg survey is expecting the CPI to rise to 2.9% Y/Y in September from 2.5% Y/Y in August.  The rise is likely to attribute to higher food prices, including pork prices during the month.  PPI is expected to fall to 1.0% Y/Y in September from 2.3% in August, helped by a high base last year. 

Singapore’s Q3 GDP and MAS policy decision due this week

Singapore reports advance estimate of Q3 GDP, along with the Monetary Authority of Singapore’s (MAS) policy decision, on October 14. Bloomberg estimates suggest some weakening, with the median consensus estimate at 3.4% y/y, from GDP growth of 4.4% y/y in the second quarter. However, q/q growth is expected to turn positive at 0.7% from -0.2% previously, thereby avoiding a technical recession. Inflation, meanwhile, has breached the 7%-mark and broad-based price pressures mean higher-for-longer inflation. This suggests MAS will continue to tighten the monetary policy, and a re-centring of the S$NEER policy band to its prevailing level can be expected. Still, the boost to the SGD may remain limited as potentially more USD gains remain likely for now. If the MAS increases the slope of the band also alongside, that could mean slightly more hawkishness suggesting some near-term gains in SGD.

Earnings season kicks off; Here is what to expect this week

US Q3 earnings reporting season kicks off this week with several leading US banks revealing results on Friday. The market will focus on JPMorganChase (JPM:xnys), Morgan Stanley (MS:xnys) and Citigroup (C:xnys). The key things to watch are the investment banks ability to increase their net interest margin and if the quality of their loan books have deteriorated or improved. Consumer brands such as Pepsi (PEP:xnas), Walgreens Boots Alliance (WBA;xnas), and Delta Air Lines (DAL:xnys) will also be important earnings to watch, which will give clues as to how the consumer is spending amid the cost-of-living crisis.

The three major themes to watch this US Corporate earnings season

Firstly; it’s important to reflect that this year the Energy sector has delivered the strongest earnings growth (in Q1 and Q2), which has held up overall S&P500 earnings figures. But now, Q3 Energy earnings will likely buck that trend; with oil earnings likely to fall after the oil price pulled back with the WTI price falling about 24% from July to September. Last week, Shell highlighted it’s bracing for profit-hits from lower refining margins; which could also signal the end of rising profits from oil giants overall in Q3. Shell expects its oil-refining margin to nearly halve to $15 a barrel in the Q3, from $28 a barrel in the prior quarter. Shell is one of the most traded stocks at Saxo this month, with the majority of its transactions last week being sells and or shorts. (For a technical on Shell, click here.) But weaker earnings for energy for one quarter, don’t spell the end of a trend necessarily. So far this month, and quarter (Q4), the oil price has risen ~13%. So if oil continues to move up amid the lack of oil supply fears, Q4 could earnings for energy could shine once more (if oil moves up for the rest of the year that is). Secondly, the other likely theme to play out in Q3, will also be a drop in overall earnings caused by a higher US dollar, and higher wages. Thirdly, unrealistic earnings expectations might not be met  as well, with ‘negative surprises’ to pop up everywhere, as written by Peter here. And finally, when it comes to earnings season, keep in mind a company’s shares can often move if their earnings results and outlook is stronger than expected, or weaker than expected. So keep abreast of the latest Saxo insights.

 

Key economic releases & central bank meetings this week

 

Monday, Oct 10

• US: Columbus Day - bond markets closed (stock markets opened)
• Eurozone: Sentix Investor Confidence (Oct)
  Japan: Health-Sports Day holiday

Tuesday, Oct 11

• US: New York Fed Survey of Consumer Expectations
• US: 3-year treasury note auction
• UK: Labour Market Report (Sep)
• Japan: Current Account (Aug)
• Japan: Current Economic Conditions

Wednesday, Oct 12

• US: PPI (Sep)
• US: Atlanta Fed Business Inflation Expectations (Oct)
• US: 10-year treasury note auction
• US: FOMC Minutes (Sep)
• UK: Monthly GDP (Aug)
• UK: Industrial Production (Aug)
• Eurozone: Industrial production (Aug)
• Japan: Machinery Orders (Aug)
• Korea: Bank of Korea meeting
• India: CPI (Sep)
• India: Industrial Production (Aug)

Thursday, Oct 13

• US: Jobless claims (weekly)
• US: CPI (Sep)
• US: 30-year bond auction
• Germany: CPI (Sep-final)
• Japan: PPI (Sep)

Friday, Oct 14

• US: Retail Sales (Sep)
• US: U of Michigan Consumer Sentiment Survey (Oct-preliminary)
• Japan: M2 (Sep)
• China: PPI (Sep)
• China: CPI (Sep)
• China: Trade Data (Sep)
• Singapore: Monetary Authority of Singapore meeting
• Singapore: GDP (Q3)

Sometime in the week

• China: Aggregate Financing (Sep)

 

Key company earnings releases this week

 

• Wednesday: Pepsi (PEP:xnas)
• Thursday: Progressive (PGR:xnys), Fast Retailing (9983:xtks), Trivago (TRVG:xnas), Walgreens Boots Alliance (WBA;xnas), Fastenal (FAST:xnas) , BlackRock (BLK:xnys), Delta Airlines (DAL:xnys), Domino’s Pizza (DOM:xlon)
• Friday: Shanghai Putailai New Energy (603659:xssc), YTO Express (06123:xhkg), PNC Financial (PNC:xnys), JPMorganChase (JPM:xnys), Morgan Stanley (MS:xnys), Citigroup (C:xnys), UnitedHealth (UEEC:xnas), Wells Fargo (WFC:xnys), US Bancorp (USB:xnys) , First Republic Bank (FRC:xnyc)

For a global look at markets – tune into our Podcast.