Top 5 Things to Watch in Markets in the Week Ahead

  • Economy News
Top 5 Things to Watch in Markets in the Week Ahead

By Noreen Burke -- Earnings season is ramping up with the four biggest U.S. companies by market value among those set to report results in the coming week. The U.S. is to release third quarter GDP figures which are expected to show a return to growth after the technical recession in the first half of the year. The European Central Bank is widely expected to deliver another jumbo rate hike of 75 basis points on Thursday as inflation in the Eurozone approaches 10%. Political events in the U.K. will remain in the spotlight as the Conservative Party selects a new prime minister. Meanwhile, investors will be watching out for delayed economic data from China after President Xi Jinping consolidated power for a historic third term on Sunday. Here’s what you need to know to start your week.

  1. Megacap earnings

The four largest U.S. companies by market capitalization are due to report in the coming week with investors keen to see how the corporate bellwethers are performing against a backdrop of soaring inflation and and the Federal Reserve’s aggressive rate hike path which have raised fears over the prospect of a recession.

Microsoft (NASDAQ: MSFT ) and Alphabet (NASDAQ: GOOGL ) are due to report on Tuesday, followed by Amazon (NASDAQ: AMZN ) and Apple (NASDAQ: AAPL ) on Thursday.

Because of their heavy weightings, "if those stocks don’t get it done, that puts pressure on the indices to continue to go down," Chuck Carlson, chief executive officer at Horizon Investment Services told Reuters.

Third-quarter earnings season has so far has been better-than-feared after results from companies including Goldman Sachs (NYSE: GS ), Bank of America (NYSE: BAC ), Netflix (NASDAQ: NFLX ) and Johnson & Johnson (NYSE: JNJ ) boosted sentiment.

  1. U.S. GDP

The U.S. is to release a first look at third quarter GDP on Thursday, with the economy expected to have expanded at an annualized rate of 2.1% after two consecutive quarters of contraction in the first half of the year.

The economic calendar also includes data on the Fed’s favored measure of inflation, the core personal consumer expenditure index , along with data on personal income and spending . Investors will also get data on durable goods orders , initial jobless claims , consumer confidence and reports on the housing market in the form of figures on both new and pending home sales .

Fed policymakers will enter their traditional blackout period ahead of their upcoming meeting on Nov 1-2 when they are all but certain to hike interest rates by 75 basis points for a fourth-straight time.

  1. ECB rate hike

A second 75 basis point rate hike by the ECB on Thursday looks like a done deal despite the looming prospect of recession in the euro area as Russia’s war in Ukraine stokes an energy crisis that is driving up inflation and hitting growth.

With euro area inflation at almost 10%, well above the ECB’s 2% target there's little appetite to slow down now, even if recession risks are rising.

Ahead of Thursday’s policy meeting October PMI data on Monday will show whether the euro area slid further into contraction territory at the end of the third quarter.

Meanwhile, revised third quarter GDP figures on Friday are expected to show evidence of slowing growth in France and a contraction in Germany .

  1. U.K. political turmoil

This week, Britain’s Conservative Party, which holds a big majority in parliament and is not obliged to call an election for another two years, is set to select a new leader who will become prime minister - Britain's fifth in six years.

Former chancellor Rishi Sunak, Penny Mordaunt and previous prime minister Boris Johnson are all potential successors to take over from Liz Truss, who quit on Thursday after just six weeks.

Truss was brought down by economic plans that included billions of pounds of unfunded tax cuts which sent sterling and bond markets into a tailspin, forcing the Bank of England to intervene.

The next prime minister will inherit an economy on course for recession, with rising interest rates and inflation over 10% leaving millions facing a cost-of-living crisis.

Chancellor Jeremy Hunt, who is expected to remain in office under the new prime minister said on Friday he would do “whatever is necessary” to drive down government debt ahead of his new budget set to be announced on Oct 31.

  1. China

Investors will be awaiting the release of delayed Chinese economic data, including third quarter GDP figures along with reports on trade, retail sales, industrial production, and the housing market for September.

Stringent COVID-19 curbs along with supply chain disruptions caused by the war in Ukraine plus slowing global growth due to sharp increases in borrowing costs to curb inflation have weighed on the world's second-largest economy.

Chinese President Xi Jinping secured a precedent-breaking third leadership term on Sunday and introduced a top governing body stacked with loyalists, with analysts watching closely to see what the implications for economic policy might be.

--Reuters contributed to this report

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