Geopolitics and Earnings Season: A Look Ahead in the Markets
Geopolitics and Market Jitters
Geopolitics are at the forefront of everyone’s minds after war broke out between Israel and Palestinian militant group Hamas, and the mood in markets is jittery at best. Uncertainty looms, but amidst the chaos, there may be some reassurance on the horizon.
Earnings Heat Up
A number of major U.S. companies are set to report their earnings, revving up a third-quarter earnings season that is expected to show a pickup in profit growth after a tepid first half. Tesla will kick off earnings for the megacaps on October 18, followed by Bank of America, Goldman Sachs, Johnson & Johnson, Netflix, and Philip Morris International throughout the week.
- Investors will also keep a close eye on U.S. retail sales for September, which will provide a key look into the health of the consumer. This data will offer insights into whether the economy can avoid a hard landing.
Castles of Sand
The clock is ticking for China’s biggest private property developer, Country Garden. The company has until Tuesday to meet coupon payments or risk having all its nearly $11 billion in offshore debt deemed in default. This situation is not unique, as companies accounting for 40% of Chinese home sales have defaulted since 2021. Beijing has implemented measures to address the liquidity crisis in the sector, but with little impact on home sales. Recent data suggests that the worst may be over for parts of the Chinese economy, and Wednesday’s release of GDP, industrial output, and retail sales figures will provide further clarity.
Poles to the Polls
Poles voted for a new government in a high-stakes election on Sunday. The cost of living and migration were key domestic issues, but the outcome of this election will also shape Poland’s ties with Brussels and have significant implications for European elections in the future.
- According to a late exit poll, the ruling nationalist Law and Justice party (PiS) was ahead in the election but looked likely to fall short of a majority. This could result in a fragile government or even a political vacuum, which may impact the zloty, domestic bonds, and the country’s stock markets.
Bank on Some Optimism
Storm clouds are brewing over European banking stocks as the boost from higher interest rates fades and recession risks rise. However, some big investors are still holding onto shares. European bank shares currently offer a dividend yield of almost 8%, making them cheaper than during the 2008 global financial crisis. Analyst forecasts suggest that European banks are expected to grow adjusted earnings by 25% this year, followed by a 6% gain in 2024.
The Old Lady’s Dilemma
The Bank of England (BoE) has been constantly surprised by inflation data for months. While inflation has slowed, it is still over three times the BoE’s 2% target, and growth is not stellar. The labor market is starting to cool, but basic pay grew at its fastest rate on record, making the BoE’s decision-making more challenging. Employment and inflation data, set to be released on October 17 and 18 respectively, could set the stage for the BoE’s November meeting.
This article offers a look ahead in the markets, covering geopolitical tensions, earnings season, China’s property market, Polish elections, European banking stocks, and the challenges faced by the Bank of England. Stay informed and navigate the markets with confidence.
