What to know this week

An already strained US stock market will be further challenged in the coming week as the government releases a key inflation report and megabanks kick off what is likely to be a murky earnings season.

The highly anticipated Consumer Price Index (CPI) takes top spot in the coming days, with the third-quarter financials of the country’s largest banks, JPMorgan (JPM), Citi (C) and Wells Fargo (WFC), following the example on the line. of importance.

A new CPI reading on Thursday is expected to dictate how much more aggressive the Federal Reserve will be with its interest rate hike plans, already the most combative in decades. The ensuing economic release will take on even greater importance after the Labor Department’s September jobs report on Friday suggested officials have more room for raises.

JPMorgan Chairman and CEO Jamie Dimon testifies on Capitol Hill in Washington, U.S., on Sept. 22, 2022. (REUTERS/Evelyn Hockstein)

The US economy added 263,000 jobs last month, a moderation from the previous report, but still a strong hiring number as the unemployment rate fell to 3.5%. The weaker-than-expected decline in payroll earnings dashed investors’ hopes that FOMC members might walk away from monetary tightening sooner than expected.

That reality sent stocks soaring on Friday. The S&P 500 (^GSPC) tumbled 2.8%, the Dow Jones Industrial Average (^DJI) lost 630 points, and the Nasdaq Composite (^IXIC) led the decline with a 3.8% drop. The major averages managed to finish higher for the week after three consecutive weeks lower after retaining some gains from a temporary rally the first two trading days of October.

“Persistent strength in hiring and a drop in the unemployment rate, in our view, mean that the Fed is unlikely to turn in the direction of a slower pace of rate hikes until it has clearer evidence that the job growth is slowing,” analysts at Bank of America said in a note on Friday, adding that the institution expects a fourth rate hike of 75 basis points in November.

And this week’s inflation reading could corroborate such a move next month. According to Bloomberg forecasts, the September Headline Consumer Price Index is expected to show a slight moderation on a year-over-year basis to 8.1% from 8.3% in August, but an increase to 0.2% from 0.1% during the month.

All eyes will be on the “core” component of the report, which removes the volatile food and energy categories. Economists surveyed for the Bloomberg project’s core CPI rose to 6.5% from 6.3% for the year, but moderated to 0.4% monthly from 0.6% in August.

The marginal fluctuations in the data have not sufficiently reassured Fed members that they can stop intervening any time soon. Speaking at an event in New York last week, Federal Reserve Bank of San Francisco President Mary Daly called inflation a “corrosive disease” and a “toxin that erodes people’s real purchasing power.”

A Federal Reserve Board of Governors sign is seen at the entrance to the William McChesney Martin Jr. Building prior to a news conference by Federal Reserve Board Chairman Jerome Powell on interest rate policy, in Washington, U.S., September 21, 2022. REUTERS/Kevin Lamarque

A Federal Reserve Board of Governors sign is seen at the entrance to the William McChesney Martin Jr. Building prior to a news conference by Federal Reserve Board Chairman Jerome Powell on interest rate policy, in Washington, U.S., September 21, 2022. REUTERS/Kevin Lamarque

In other economic releases, investors will also get a gauge of how fast prices are rising at the wholesale level with the Producer Price Index, or PPI, which measures the change in prices paid to producers of goods and services from USA; a read on how consumer spending is faring amid persistent inflation and slower economic conditions with the government’s retail sales report; and a closely watched survey consumer opinion check from the University of Michigan.

Bank earnings, meanwhile, will set the stage for a third-quarter earnings season that is expected to be plagued by economic warnings from corporate executives about the state of their businesses, cut earnings-per-share estimates on Wall Street and generally more moderate results due to price and rate pressures. heavy on companies in the last quarter.

Results from JPMorgan, Citigroup, Wells Fargo and Morgan Stanley are due next week and will be followed by Goldman Sachs (GS) and Bank of America (BAC) the following week.

CEOs of the nation's largest banks are sworn in at the start of a Senate hearing on Banking, Housing and Urban Affairs on

CEOs of the nation’s largest banks are sworn in at the start of a Senate Banking, Housing and Urban Affairs hearing on “Annual Oversight of the Nation’s Largest Banks,” on Capitol Hill in Washington, USA. , September 22, 2022. REUTERS /Evelyn Hockstein

Banks typically benefit from tighter central bank policy, with higher interest rates boosting their net interest income (the bank’s earnings on its lending activities and the interest it pays to depositors) and interest margins. net income (calculated by dividing net interest income by the average income earned on interest-bearing assets). However, challenging market conditions that have dealt a blow to trading activity and general macroeconomic uncertainty are poised to offset higher net interest income.

Bank of America analysts project earnings growth to slow at banks and brokers to 2.0% year-over-year in the third quarter from 5.9% in the second and 7.7% in the third, according to bottom-up consensus estimates. , according to a recent note. .

However, that drop pales in comparison to expectations from sectors outside of finance, with the exception of the energy sector, according to BofA. Earnings growth in those areas “is expected to fall well into negative territory,” the bank warned in a note, with growth expected at -4.2% year-over-year in the third quarter, down from -1.3% in the quarter. second. fourth.

economic calendar

Monday: There are no notable reports scheduled for publication.

Tuesday: NFIB Small Business OptimismSeptember (91.8 expected, 91.8 during the previous month); Monthly budget statementSeptember (-$219.6 billion)

Wednesday: MBA Mortgage Applicationsweek ending October 7 (-14.2% over the previous week); PPI excluding food and energyyear over year, September (7.3% expected, 7.3% during the previous month); IPP Final Demandmonth over month, September (0.2% expected, -0.1% over the previous month); PPI excluding food and energymonth over month, September (0.3% expected, 0.4% during the previous month); PPI excluding food, energy and trademonth over month, September (0.2% expected, 0.2% during the previous month); IPP Final Demandyear over year, September (8.4% expected, 8.7% during the previous month); PPI excluding food, energy and tradeyear over year, September (5.6% over the previous month); FOMC meeting minutesSeptember 21st

Thursday: Consumer’s price indexmonth over month, September (0.2% expected, 0.1% during the previous month); CPI without food or energymonth over month, September (0.4% expected, 0.6% during the previous month); Consumer’s price indexyear over year, September (8.1% expected, 8.3% during the previous month); CPI without food or energyyear over year, September (6.5% expected, 6.3% during the previous month); NSA CPI IndexSeptember (296,417 expected, 296,171 during the previous month); CPI Core SA IndexSeptember (296,950 during the previous month); unemployment claimsweek ending October 8 (225,000 expected, 219,000 during previous week); ongoing claimsweek ending October 1 (1,361 during the previous week); Actual Average Weekly Earningsyear over year, September (-3.4% over the previous month)

Friday: Retail Sales Advancemonth over month, September (0.2% expected, 0.3% during the previous month); Retail sales excluding automobilesmonth over month, September (-0.1% expected, -0.3% during the previous month); Retail sales excluding automobiles and gasolinemonth over month, September (0.3% over the previous month); Retail Sales Control GroupSeptember (0.0% during the previous month); Import Price Indexmonth over month, September (-1.1% expected, -1.0% over the previous month); Non-Oil Import Price Indexmonth over month, September (-0.2% over the previous month); Import Price Indexyear over year, September (7.8% over the previous month); Export Price Indexmonth to month, September (-1.2% expected, -1.6% during the previous month); Export Price Indexyear over year, September (10.8% over the previous month); Bloomberg Oct. US Economic Survey; commercial inventoriesAugust (0.9% expected, 0.6% during the previous reading); Consumer Sentiment from the University of MichiganOctober preliminary (58.8 expected, 58.6 during the previous month)

earnings calendar

Monday: There are no notable reports scheduled for publication.

Tuesday: AZZ (AZ), Pinnacle Financial Partners (PNFP)

Wednesday: PepsiCo (ENERGY), Duck Creek Technologies (DCT)

Thursday: black rock (BLACK), delta airlines (DAL), Progressive (PGR), Walgreens Boots Alliance (WBA), Commercial Metals (CMC), Taiwan Semiconductors (MST)

Friday: JPMorgan (JPM), Citi Group (C), Morgan Stanley (MS), PNC (PNC), US Bank (usb), United Health (UNH), fargo wells (WFC)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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