Geopolitics are at the forefront of everyone’s minds after war broke out between Israel and Palestinian militant group Hamas, and the mood in markets is jittery at best.
Next week might offer some reassurance that both households and businesses are holding up in an uncertain macro environment as some of the world’s biggest companies report earnings, and economic data offers a look at growth, wages and consumer spending in the likes of the United States, China and Britain.
Here’s your week ahead in markets:
EARNINGS HEAT UP
A general view of a Tesla's Gigafactory Berlin-Brandenburg building, a part of the electric car manufacturer, in Gruenheide, Germany July 18.ANNEGRET HILSE/Reuters
A number of major U.S. companies report results, revving up a third-quarter earnings season expected to show a pickup in profit growth after a tepid first half.
Tesla kicks off earnings for the megacaps on Oct. 18. These companies’ shares have been key drivers of the equity rally in 2023.
Bank of America and Goldman Sachs both report Oct. 17. Other heavy hitters include healthcare giant Johnson & Johnson on Oct. 17, Netflix on Oct. 18 and Philip Morris International on Oct. 19.
In economic data, U.S. retail sales for September, due on Tuesday, will provide a key look into the health of the consumer. Investors are keen to determine if the economy can avoid a hard landing. U.S. retail sales increased more than expected in August as a surge in gasoline prices boosted receipts at service stations.
CASTLES OF SAND
This aerial photo taken on Oct. 10 shows logos of China's developer Country Garden Holdings on top of a building in Zhenjiang, in China's eastern Jiangsu province.STR/AFP/Getty Images
The clock is ticking loudly for China’s biggest private property developer.
Country Garden has until Tuesday to meet coupon payments or have all its nearly US$11-billion in offshore debt deemed in default.
It’s not alone. Companies accounting for 40 per cent of Chinese home sales have defaulted since 2021, when a liquidity crisis hit the sector, which accounts for about a quarter of the economy.
Beijing has rolled out a raft of measures recently, but with little impact on home sales.
There have been reports the government is looking to increase its budget deficit to meet this year’s 5 per cent growth target.
Recent data already suggests the worst may be over for parts of the economy. Wednesday could bring confirmation, with the release of GDP, industrial output and retail sales figures.
POLES TO THE POLLS
A rally of Law and Justice supporters watch a televised leaders’ debate in Warsaw on Oct. 10.Anna Liminowicz/The Globe and Mail
Poles voted for a new government in a high-stakes election on Sunday, following a tight, unpredictable race in central Europe’s largest economy. The cost of living and migration are key domestic issues, but the vote will shape Poland’s - currently frayed - ties with Brussels, and also be hugely consequential for European elections in summer 2024.
Polls point to a win for the ruling nationalist Law and Justice party (PiS), but to no outright majority, potentially leading to fragile governments, or even a political vacuum, which could bring more pain for the zloty, domestic bonds and the country’s stock markets.
The election cycle is also heating up elsewhere in emerging markets, with Ecuadorians voting on Sunday for a new president and Argentinians heading to the polls on Oct. 22.
BANK ON SOME OPTIMISM
Logos of Swiss banks Credit Suisse and UBS are seen before a news conference in Zurich Switzerland, Aug. 30.DENIS BALIBOUSE/Reuters
Storm clouds are brewing over European banking stocks as the boost from higher interest rates fades and recession risks rise, but some big investors are hanging onto shares.
Banks have long underperformed the region’s main stock market. And just ahead of quarterly earnings next week, European bank shares are sporting a dividend yield of almost 8 per cent, making them cheaper on this basis than during the 2008 global financial crisis.
Banks have had a major boost from hiking their loan costs in line with central bank rates.
Analyst forecasts collated by European asset manager Amundi show European banks are expected to grow adjusted earnings by 25 per cent this year, followed by a 6 per cent gain in 2024.
THE OLD LADY’S DILEMMA
People walk outside the Bank of England in London on Sept. 21.PETER NICHOLLS/Reuters
Poor Old Lady of Threadneedle Street. The Bank of England (BoE) has been constantly wrongfooted by inflation data for months. For most of the year, it’s come in above expectations and well above the central bank’s own forecasts. Suddenly in August, it slowed more than expected. Many believe the data pushed the BoE to leave rates unchanged at its last meeting.
That said, inflation is still over three times the BoE’s 2 per cent target and growth isn’t exactly stellar. Meanwhile, at the last count, the labour market was starting to cool, but basic pay grew at its fastest rate on record - making the BoE’s juggling act even tougher.
More surprises on Oct. 17 and 18, when employment and inflation data land, respectively, could set an awkward scene for the BoE’s November meeting a little over two weeks later.
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