The third-quarter corporate earnings release season will officially commence next week with PepsiCo, Fastenal, and a list of financial institutions leading the way. In addition to corporate results, investors will also be able to pay attention to inflation developments in the US and Germany, as well as the latest data on the month-on-month change in UK GDP.
Wednesday 11.10. 06:00 GMT, Germany Consumer Price Index (CPI) (September)
The CPI index measures changes in the prices of consumer goods and services. It covers different types of products, such as food, fuel, transportation services, cosmetics, household goods, clothing, and many others. The purpose of the CPI index is to measure the increase or decrease in the cost of living for consumers. As the CPI index rises, consumers' purchasing costs increase, affecting their money's purchasing power. The CPI index is used to monitor inflation or the overall rise in prices in the economy. It allows us to assess whether prices are rising too fast or too slowly and to determine what economic policy measures should be taken to offset the adverse effects of inflation.
In September 2023, Germany's year-on-year consumer price inflation recorded a notable decline, falling to 4.5% from 6.1% in the previous month and slightly below the market's initial estimate of 4.6%. Notably, this is the lowest inflation rate observed since the onset of the conflict in Ukraine back in February 2022. The deceleration in inflation can be attributed to a slower rate of price increases in both services and goods.
Prices for services showed a more moderate increase of 4.0% (compared with 5.1% in August). This moderation was largely due to a base effect resulting from the abolition of the 9 euro monthly ticket for public transport in September 2022.
Furthermore, goods inflation also declined, dropping to 5.0% from 7.1%. This decrease might be attributed to a slowdown in both food prices (7.5% compared to 9.0%) and energy costs (1.0% compared to 8.3%). The drop in energy costs, in particular, was heavily influenced by a base effect when compared to September 2022, which marked the conclusion of a fuel discount.
Additionally, the core inflation rate, which excludes volatile items like food and energy, reached a one-year low of 4.6%. The initial estimate for the month-on-month CPI was reported at 0.3%, keeping the same pace since June.
Source: Tradingeconomics.com
If the reading is higher than expected, inflation is higher, possibly favouring a fall in the EUR. Meanwhile, it is also a stimulus for the ECB to raise interest rates and reduce the money supply, causing an increase in the EUR. If the reading is lower than expected, it may give the ECB an argument to stop its policy of raising interest rates.
Impact: EUR, DAX and other indices
Thursday 12.10. 06:00 GMT, UK Gross Domestic Product (GDP) MoM (August)
Gross domestic product (GDP) indicates the total value of goods and services produced in a country for a certain period. GDP is an important indicator of the health of an economy because it gives an overall picture of how well or poorly it is doing. If the GDP growth is higher than expected, the economy is in good shape and growing faster than expected. On the other hand, if the GDP growth is lower than expected, the economy performs weaker than anticipated.
In July 2023, the British economy experienced a significant contraction of -0.5% on a month-over-month basis, marking the most substantial decline witnessed throughout the year and reversing the 0.5% growth observed in June. These figures fell short of market expectations, which had anticipated a more modest -0.2% decrease.
The main driver of this contraction was the services sector, which shrank by -0.5%, in contrast to the 0.2% growth recorded in June. Within the services sector, the most significant negative impact came from the health sector, which saw a sharp decline of -3.4%. This drop was attributed to strikes in the NHS, resulting in appointments and medical procedures being cancelled. Additionally, there was a notable -3.4% decline in the field of computer programming, consultancy, and related activities. Consumer-facing services saw no growth, as opposed to the 0.5% growth seen previously, with the retail trade sector making the most significant negative contribution with a decline of -1.2%.
Meanwhile, the production sector also witnessed a contraction of -0.7% (compared to the 1.8% growth in the previous month), with manufacturing shrinking by -0.8%. Within the manufacturing sector, the production of rubber and plastic products recorded a significant decline of -5.5%. The construction sector fell by -0.5%, a decrease from the 1.6% growth recorded earlier.
When considering the three months leading up to July, the Gross Domestic Product (GDP) saw a modest increase of 0.2%.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bullish effect on the GBP, while a lower-than-expected reading could be bearish for the GBP.
Impact: GBP
Thursday 12.10. 12:30 GMT, US Consumer Price Index (CPI) YoY (September)
While Germany's inflation rate has been steadily declining, CPI in the United States continued to rise for the second consecutive month, reaching 3.7%, up from 3.2% in July. This surpassed market predictions, which had anticipated a rate of 3.6%. This upward trend in inflation can be attributed to several factors, including the recent increase in oil prices over the past two months and the influence of base effects from the previous year, which collectively pushed inflation higher.
In July 2023, energy costs recorded a less pronounced fall of -3.6%, much less than the -12.5% observed in July. This reduction in energy costs was more gradual for fuel oil, with a decrease of -14.8% as opposed to -26.5%, and for gasoline, which declined by -3.3% instead of -19.9%. Furthermore, the cost of transportation services increased at a faster rate, rising to 10.3% from the previous rate of 9%.
Conversely, inflation rates decelerated in various sectors, including electricity prices (2.1% vs 3%), food (4.3% vs 4.9%), shelter (7.3% vs 7.7%), new vehicles (2.9% vs 3.5%), and apparel (3.1% vs 3.2%). Additionally, there were more significant declines in the cost of utility gas service (-16.5% vs -13.7%), medical services (-2.1% vs -1.5%), and used cars and trucks (-6.6% vs -5.6%).
However, the core inflation rate, which excludes food and energy prices, exhibited a slowdown for the fifth consecutive month, reaching 4.3%, aligning with market expectations.
Source: Tradingeconomics.com
If the reading is higher than expected, inflation is higher, possibly favouring a fall in the USD. Meanwhile, it is also a stimulus for the Fed to raise interest rates and reduce the money supply, causing an increase in the USD. If the reading is lower than expected, it may give the Fed an argument to stop its policy of raising interest rates.
Impact: USD, S&P 500 and other indices
Stocks to watch
PepsiCo (PEP) announcing its earnings results for the quarter ending on 09/2023. Forecast EPS: 2.15. Positive earnings surprise in 10 out of the last 10 reports. Time: Tuesday, October 10, before the market opens.
BlackRock (BLK) announcing its earnings results for the quarter ending on 09/2023. Forecast EPS: 8.79. Positive earnings surprise in 9 out of the last 10 reports. Time: Wednesday, October 11.
Fastenal (FAST) announcing its earnings results for the quarter ending on 09/2023. Forecast EPS: 0.5047. Positive earnings surprise in 9 out of the last 10 reports. Time: Thursday, October 12 before the market opens.
JPMorgan (JPM) announcing its earnings results for the quarter ending on 09/2023. Forecast EPS: 3.86. Positive earnings surprise in 8 out of the last 10 reports. Time: Friday, October 13 before the market opens.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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