Happy Sunday, Traderade family! I hope you're all having a great weekend.
The week ahead brings us the kick-off of Q3 earnings season as major money center banks report on Friday, October 14th. We also have a slew of key economic data to process, including PPI and CPI, and, finally, $90 billion in Treasury auctions of notes and bonds, as well as another $102 billion on bills.
Remember that the stock and futures markets are both open on Monday, but the bond market will be closed. So it's mostly business as usual.
Let's dig in!
Next week we have key reports as Q3 earnings season kicks off into full gear.
I'll be paying careful attention to what we hear from PepsiCo, Walgreens Boots Alliance, JP Morgan, and Wells Fargo.
On Wednesday we have PepsiCo, which is seen by analysts to have the slowest pace of EPS expansion since the final quarter of 2020 at 2.9% year-over-year. Reports from Bloomberg Intelligence hypothesize that higher input costs are pressuring operating margins.
On Thursday we have Walgreens Boots Alliance, which will release its Q4 2022 results pre-market. Earnings during its 2022 fiscal year which, in part, was during the peak of the COVID pandemic make for tough comps in 2023. There's also more immediate potential risk to shares. During the Q3 earnings release in June, even though the company beat on EPS and affirmed guidance, the shares sold off to their lowest levels since 2020.
On Friday we have a slew of major banks, all reporting before the market opens:
JP Morgan is expected to have strong trading due to market volatility. But deals are expected to continue showing slowing during this challenging macro environment. It's important to pay attention to the bank's guidance on the economy, how they may treat future share buybacks, their forecast on loan loss reserves, and any expected credit losses.
Wells Fargo is likely to continue to see slowing in its lending. The bank had shuttered a fair amount of its mortgage operations as rates rose and applications plummeted. We're likely to hear more about this and I believe it will be important guidance as Wells Fargo is a sizable mortgage lender that may provide some guidance on the health of the consumer and housing market.
The economic calendar next week is full of event volatility catalysts, including even more Fed speeches. How could we ever tire of those? I'm still waiting for the Fed to have a reality TV show that nobody watches.
But, in all seriousness, we are starting to see some fractures in the narratives by Fed speakers. While the majority remain hawkish, some concern is beginning to emerge about the current policy trajectory. It will be important to pay attention to what voting members (both this and next year) have to say.
The real economic fireworks kick off on Wednesday, when we have PPI and FOMC minutes from the September meeting. Remember, there is no FOMC meeting in October. The next rate decision will be on November 2nd, 2022.
PPI measures producer pricing, which is a key econometric because it can illustrate whether or not there is additional potential for cost push inflation coming down from the supply chain to intermediaries and finally consumers
A hotter than expected reading is likely to be quite bearish for bonds and equities. But a cooler than expected reading, particularly if it is across multiple areas being measured, would probably be seen as bullish for the market as it would be seen as supporting the "peak inflation" narrative.
On lucky Thursday the 13th we get CPI data. I see a similar setup as PPI in terms of what a hotter or colder reading may mean for markets.
For both CPI and PPI I believe that recent weakness in energy prices may lend to subduing the month-over-month readings by some degree. But persistent price pressure from stickier areas, for example, like shelter in CPI, are likely to remain elevated.
The Cleveland Fed has an Inflation Nowcasting model that has been a helpful frame of reference, and quite accurate most of the time.
The forecast currently calls for 8.2% headline CPI, and 6.64% Core CPI year-over-year and 0.32% in month-over-month CPI, and 0.51% in Core CPI over the same period.
On Friday we have Retail Sales, the preliminary UoM Consumer Sentiment reading, and
Business Inventories. All of which are key data points and are likely to move markets if we see readings that meaningfully deviate from estimates either way.
August's retail sales data was boosted by car sales popping back after a soft July. Whether we experience that trend again remains to be seen, but if we don't the data is likely to appear weak month-over-month in my opinion.
The week ahead has a reasonable amount of Treasury auctions, totaling $192 billion, with $72 billion in 3 and 10-year notes and then $18 billion in 30-year bonds. The 10-year note auction comes on PPI day and the 30-year bond auction happens on CPI day.
This timing is likely to make these particular note and bond auction results closely watched by market participants as a gauge of how the economic data is being digested by bond buyers. Weak auctions are likely to have a negative impact on the stock market and other debt markets, particularly longer duration risk and rate sensitive assets.
The bills auctions are likely to be well absorbed and relative non-events for the market.