Q3 earnings and US CPI take center stage
(MENAFN- APCO Worldwide) By Daniela Hathorn, senior market analyst at Capital
Global equities are opening the week on a cautiously positive note, but the improvement in risk appetite remains fragile. Geopolitical uncertainty, elevated borrowing costs and this week’s US inflation data are continuing to keep investors wary of taking on significant additional risk. Wednesd’y’s CPI release is expected to show headline inflation accelerating towards 3.7% in September, reflecting the impact of higher energy prices, while core inflation is forecast at around 2.5%. The gap between the two readings will be particularly important for the Federal Reserve, which raised interest rates in September and now faces the delicate task of bringing inflation under control without placing unnecessary pressure on economic growth. Markets are currently pricing in an approximately 80% probability that the Fed will leave rates unchanged at its October meeting. A softer core reading could strengthen that expectation and offer some relief to equities and bonds, while an upside surprise could trigger another rise in yields and renew pressure on risk assets.
The bond market arguably remains the most vulnerable area, with US Treasury yields still at multi-decade highs. Higher borrowing costs are tightening financial conditions, potentially reducing the need for further Fed rate increases. At the same time, they are creating a more challenging backdrop for equity valuations, particularly in the technology sector, where expectations of future earnings growth have been a major driver of recent gains. Meanwhile, the US dollar remains close to an 18-month high, supported by elevated yields and its safe-haven appeal amid geopolitical uncertainty. EUR/USD is struggling to regain momentum around 1.12, with concerns over Fr’nce’s fiscal outlook adding another layer of pressure on the single currency. Gold has recovered towards $4,200 following its recent correction, benefiting from some stabilisation in bond yields, although the broader environment remains challenging for non-yielding assets.
Attention is also shifting to the start of the third-quarter earnings season, with major US banks including JPMorgan, Citigroup and Wells Fargo due to report this week. Investors will be looking beyond the headline earnings figures for signs of how higher interest rates are affecting lending activity, credit quality and consumer resilience. Technology earnings will also be closely watched, particularly amid renewed concerns over whether the substantial investment in artificial intelligence can generate sufficiently strong revenue growth to justify elevated valuations
Global equities are opening the week on a cautiously positive note, but the improvement in risk appetite remains fragile. Geopolitical uncertainty, elevated borrowing costs and this week’s US inflation data are continuing to keep investors wary of taking on significant additional risk. Wednesd’y’s CPI release is expected to show headline inflation accelerating towards 3.7% in September, reflecting the impact of higher energy prices, while core inflation is forecast at around 2.5%. The gap between the two readings will be particularly important for the Federal Reserve, which raised interest rates in September and now faces the delicate task of bringing inflation under control without placing unnecessary pressure on economic growth. Markets are currently pricing in an approximately 80% probability that the Fed will leave rates unchanged at its October meeting. A softer core reading could strengthen that expectation and offer some relief to equities and bonds, while an upside surprise could trigger another rise in yields and renew pressure on risk assets.
The bond market arguably remains the most vulnerable area, with US Treasury yields still at multi-decade highs. Higher borrowing costs are tightening financial conditions, potentially reducing the need for further Fed rate increases. At the same time, they are creating a more challenging backdrop for equity valuations, particularly in the technology sector, where expectations of future earnings growth have been a major driver of recent gains. Meanwhile, the US dollar remains close to an 18-month high, supported by elevated yields and its safe-haven appeal amid geopolitical uncertainty. EUR/USD is struggling to regain momentum around 1.12, with concerns over Fr’nce’s fiscal outlook adding another layer of pressure on the single currency. Gold has recovered towards $4,200 following its recent correction, benefiting from some stabilisation in bond yields, although the broader environment remains challenging for non-yielding assets.
Attention is also shifting to the start of the third-quarter earnings season, with major US banks including JPMorgan, Citigroup and Wells Fargo due to report this week. Investors will be looking beyond the headline earnings figures for signs of how higher interest rates are affecting lending activity, credit quality and consumer resilience. Technology earnings will also be closely watched, particularly amid renewed concerns over whether the substantial investment in artificial intelligence can generate sufficiently strong revenue growth to justify elevated valuations
Legal Disclaimer:
MENAFN provides the
information “as is” without warranty of any kind. We do not accept
any responsibility or liability for the accuracy, content, images,
videos, licenses, completeness, legality, or reliability of the information
contained in this article. If you have any complaints or copyright
issues related to this article, kindly contact the provider above.
Comments
No comment