U.S. markets are on edge over the interest-rate outlook this week ahead of the September CPI release and third-quarter earnings from major banks.
U.S. equity markets are widely expected to see a renewed debate over whether further rate hikes are warranted ahead of Wednesday's September CPI release and third-quarter earnings announcements from 6 major banks. Markets are closely watching the combination of inflation data and earnings as they gauge how the Federal Reserve will assess the situation ahead of its October FOMC meeting.
Economists expect September CPI to rise 3.6% year on year, with the core index up 2.5%, putting the Fed's assessment of current conditions against its 2% target to the test. Market participants are paying particular attention to trends in core services inflation and point to the possibility that the interest-rate path could shift again.
The PPI, September U.S. retail sales and Friday's industrial production index are also due this week, which is expected to provide a fuller picture of price pressures and the resilience of consumer spending. With bank earnings due, some analysis also indicates that third-quarter earnings for S&P 500 companies are expected to grow by more than 30%.
Markets are expected to remain volatile against a backdrop of rising long-term interest rates, with the 10-year U.S. Treasury yield ending the week at around 5.24%. Although equity markets have remained firm against this backdrop, some point to the possibility that the direction could shift sharply depending on the bank earnings results.
JPM, GS, C and WFC are scheduled to report earnings on Tuesday, followed by MS and BAC on Wednesday, and some expect the results could prompt relief buying. Market attention is focused on lending activity and conditions in the capital markets, while Johnson & Johnson, UnitedHealth Group and BlackRock will also be in focus this week.