Wall Street Earnings
The fourth quarter kicked off with a series of fresh all-time highs for the major US indices and bulls will be eyeing fresh momentum from the start of the third quarter earnings releases. The major Wall Street banks kick things off, with Citigroup, JPMorgan, Bank of America and Wells Fargo all due to update the market this week.
As is customary, analysts have been dialling back their Q3 earnings estimates over the last few months. Earnings have been strong so far this year, with EPS growth of 13.6% in Q1 and 11.1% in Q2, but according to Zacks Investment Research expectations for Q3 have declined to a mere 3.2%.
US Inflation and Retail Sales
Expectations for a December rate hike by the Federal Reserve will either be gilded or dented by the double-helping of CPI inflation and retail sales data on Friday. As has been repeated time and again, weaker inflation has so far failed to derail the Fed’s plans to raise rates again this year.
August delivered a healthy boost to CPI inflation, which rose 0.4% after a run of nearly flat numbers. The Fed’s argument that pressures keeping a lid on inflation will prove temporary is beginning to be taken more seriously and price growth may start to pick up from here.
Staying on the Fed and the minutes from the last policy meeting will be pored over for clues about where rates are heading when they are released on Wednesday.
The meeting, at which the Fed left rates on hold and confirmed the start of its balance sheet reduction programme, was viewed as broadly hawkish since it confirmed policymakers are set to raise rates once more this year. However, if anything, the longer term outlook for inflation and rates was more dovish and this may become more apparent in the minutes.
Three of four hawks have given up on two further hikes this year and there is now a strong consensus around one more hike. Four doves still expect no further hikes this year. Two policymakers see no rate hike next year as the dots seemed to indicate the chances of the Fed continuing with hikes next year diminishing. Further out, Fed policymakers see the terminal rate at just 2.8%, down from the previous 3%.
Provident Financial Update
Provident Financial Group stunned the City when it delivered a giant profits warning in August. Shares tumbled 66% in a single day after it admitted that it had gotten an operational restructuring seriously wrong and revealed it is being investigated by FCA. The stock has been on a wild ride since and whilst it is down 75% in the last year it is up more than 40% from the lowest point plumbed in the wake of the profits warning.
Friday’s interim management statement is the first chance to see whether it’s got its house in order or if things have gone from bad to worse.
Source: ETX Capital