Week ahead: 23-27 October

Monday:

Eurozone consumer confidence

A quiet start to the week sees eurozone consumer confidence data released. The gains seen over the first half of the year have taken a turn for the worst, with traders watching to see if we see a third consecutive decline. Should that come to fruition, traders could see this as a potential cause for concern and grounds for further economic weakness going forward.

Tuesday:

UK Jobs report

While we saw the average earnings figure released last week, the ONS delayed the release of unemployment and claimant count figures until this week. It is worthwhile noting that not all figures are for the same period, with the claimant count covering September, while unemployment rate relates to August. Markets will be looking for signs of economic weakness as a sign that rates are hurting the economy, with GBP weakness likely to come into play if such a move occurs. The unemployment rate figure is expected to remain at 4.3%, but claimants are predicted to move higher after last months figure of 0.9k. Any particularly notable uptick in these figures could signal that the BoE will need to keep rates steady as a weakening economy brings lower inflation expectations.

Global PMIs

A raft of PMI data reports are released over the course of the day, with figures out of France, Germany, the eurozone, and UK ensuring a volatile European session. While we have seen some stabilization for manufacturing of late, the decline of the services sector has seen both the UK and eurozone figures fall below the 50 mark in recent months. With the eurozone and UK services sector now in contraction any further clients would bring great concern over direction of European growth. From a US perspective, the recent downward trajectory in services sector growth raises the likeliness of a move into contraction for the first time since January.

Alphabet earnings

Alphabet have enjoyed an impressive 2023 thus far, with the parent group of Google gaining over 50%. A strong Q2 report helped the stock to push into a fresh 18-month high last month, but we have seen some selling pressure take hold as wider market sentiment nosedives. In Q2, the company reported a 7% increase in total revenue, totaling $74.6 billion. Notably, Google Search excelled, generating $42.63 billion, and YouTube rebounded from a weak Q1, reaching $7.66 billion in revenue. Profits for Q2 were also impressive, at $21.83 billion, surpassing last year’s $19.45 billion. Q1’s underperformance was partly attributed to a $2 billion charge related to 12,000 job layoffs. In Q2, the company allocated an additional $69 million for optimizing office space, on top of the $564 million set aside in Q1. Looking ahead to Q3, expectations are positive, with total revenue projected to rise to $75.5 billion. YouTube is anticipated to contribute $7.7 billion, and Google Search is expected to reach $43.2 billion in revenue. Profits are forecasted to be $1.45 per share.

Wednesday:

Australian CPI

Sentiment for the Australian dollar has been driven significantly by indecision at the RBA with their data dependence and relatively strong economy signalling the potential for further rate hikes. Michele Bullock may have touted a similar line at her first meeting, but the minutes showed a willingness to act if necessary. The Australian inflation report will be key for that reason with markets expecting to see CPI turn higher once again. Should that come to fruition, market pricing around a near term rate hike could help lift the Australian dollar.

Bank of Canada rate decision

Market pricing for Bank of Canada rate hike this month have shifted over recent weeks with markets now pricing a 80% chance that they will keep rates steady once again. In fact markets are increasingly expecting the current 5% level to represent the terminal rate. The latest Canadian retail sales figure came in lower than expected signalling that the BoC will perceive lower consumption as a result of their recent monetary policy decisions. Should we see the bank keep rates steady, any commentary that signals a desire to end the tightening phase could help lift CAD.

Meta earnings

Meta is set to announce its earnings for the third quarter, coming off the back of a strong Q2. The company enjoyed double-digit revenue growth in the second quarter, while earnings per share rose to $2.98 (up 21% YoY). The family of apps, including Facebook, Instagram, WhatsApp, and Reels, generated substantial revenue, up 12% year-on-year. However, the loss in its Reality Labs division widened, impacting overall profits. Daily Active Users (DAU) increased to 2.06 billion, up 5% from the previous year.

As Meta shifts its focus to AI development, particularly with the release of its Llama 2 product, investors should closely monitor the adoption of these AI technologies and their impact on ad revenue. Meta’s core business heavily relies on advertising income, accounting for 98% of overall revenue. Additionally, user growth remains a crucial metric, as stable growth is expected in the coming quarters. For the third quarter, Meta expects revenue to range between $32 billion and $34.5 billion, representing a 15% year-on-year increase. However, expenses are set to rise due to legal-related costs and restructuring expenses, with the losses in Reality Labs expected to widen in 2023. Bloomberg forecasts anticipate significant annual growth in earnings per share, revenue, net income, and Daily Active Users.

Thursday:

ECB rate decision

The European Central Bank (ECB) look set to hold steady during its upcoming meeting, with investors closely watching three key aspects: the economic outlook commentary, the threshold for further rate hikes, and potential adjustments to PEPP reinvestments and reserve remuneration. The Governing Council is likely to maintain that economic projections remain largely unchanged, although elevated uncertainties have emerged due to the ongoing Middle East conflict. ECB President Christine Lagarde looks likely to highlight the fact that the Middle East conflict does introduce greater concern from an economic standpoint, with energy prices posing a particular upside risk to inflation. With the eurozone economy continuing to show signs of weakness, there is a hope that the ECB have done enough to drive down inflation (barring an energy price spike). With that in mind, the committee look likely to push a stabilization of rates as they work their way through the eurozone economy.

US Q3 GDP

As inflationary pressures recede, the third quarter GDP reading could hammer home just how well the economy is doing in the face of sky high interest rates. Coming off the back of an already impressive first (2.2%) and second (2.1%) quarter, forecasts for the July-September period point towards a figure over 4%. The stronger the figure, the more markets will expect from the FOMC in terms of further monetary tightening. With that in mind, watch out for USD volatility when this figure estimate of Q3 GDP is released.

Amazon earnings

Amazon’s Q3 earnings offer insights into U.S. consumption amid rising interest rates. Last quarter, the tech giant exceeded estimates, reaching its highest earnings per share in six quarters. However, concerns arise about sustaining this growth as consumers grapple with higher living costs. Retail sales data indicates ongoing spending strength, partly due to rising wages.

Amazon’s web services cloud segment continues to drive growth, though Q2 saw growth slow to 12% from 16% in Q1. Investment in AI is expected to benefit AWS in the future. Advertising also plays a significant role, with a 22% gain in Q2 showcasing its growing influence.

Despite higher rates, Amazon’s growth may persist as inflation raises the value of goods sold. As long as consumers maintain their purchasing levels, the company should benefit. While Q3 EPS is projected at around $0.58 (compared to $0.65), the focus is on consolidating Q2’s performance rather than blockbuster figures, potentially enabling outperformance under favorable conditions.

Friday

US Core PCE price index

The Fed’s favoured inflation gauge comes into focus as we close out the week, with the September figure likely to play a significant role for FOMC members deciding whether to raise rates again this year. While we have largely grown accustomed to central banks holding off on rates hikes of late, the recent rise in energy prices have raise inflation expectations. Given the relative strength of the US economy (as likely shown by Thursday’s GDP reading), there is still a chance of a 1 November hike if inflation pushes higher yet. The year-on-year core PCE rate decelerated from 4.3% to 3.9% last month, helping to ease inflation concerns. Another notable decline could ease pricing for another 2023 hike. With markets looking for a figure between 3.6% and 3.7%, the disinflationary path evident over the course of this year does look likely to persist for now.

ExxonMobil and Chevron earnings

Energy has been forecast to drag the S&P 500 earnings figure lower for the third quarter, with economists looking for a significant year-on-year slump thanks to lower prices. However, we have seen a strong Q3 for crude oil, helping to lift the shareprice for some of these big oil & gas majors. With that in mind, watch out for potential volatility, where annual comparisons look weak but near-term quarterly trends should provide grounds for optimism. With an unsettled geopolitical outlook in the Middle East, we have also seen higher gas prices that should provide a more constructive outlook for both firms.