After a week of deep turbulence in the marketsthe Global finance is in full alarm and there are at least 4 reasons.
The collapse of the bond market, with yields rising to new multi-year highs in the main global economies and the plunge in stocks with investors fearful of rather uncertain scenarios dominated the financial scene. With central banks promising still high rates and the risks of recession – especially in Europe – not abating, the stock markets risk profound fluctuations.
The strong dollar has also triggered chaos in the currency market and now financial markets are preparing for US inflation data and the start of earnings season. These are just 2 events that can overwhelm sentiment next week.
Also in the spotlight are the World Bank/International Monetary Fund annual meeting and energy sector movements. There are at least 4 reasons for alarm.
1. How hot is US inflation still?
With benchmark Treasury yields around 16-year highs, the stakes are high for the monthly report on the US consumer price index on Thursday, October 12, as investors weigh how much more the Fed can actually raise interest rates.
August data showed the fastest rise in inflation in 14 months with the soaring cost of petrol, although the annual rise in underlying inflation was the lowest in almost two years. With oil prices hovering around $90 a barrel, there’s no doubt that energy is in focus.
A blistering inflation report could fuel concerns that the Fed’s stance on rates could become even more aggressive, after its “higher for longer” mantra in September spooked markets.
The forecast for the November meeting is for a stable cost of money, but there are those who are also starting to bet on another increase.
2. Earnings season begins. Banks in focus
Reports from major banks kick off the third-quarter earnings season for U.S. companies, with stock investors eager for catalysts to boost stocks amid rising bond yields.
JPMorgan, Citigroup e Wells Fargo will release their findings on October 13 and provide an initial read on the fallout from rising rates on issues ranging from loan demand to consumer behavior.
Other companies set to release their accounts include snacks and drinks giant PepsiCo on Tuesday, Delta Air Lines on Thursday and insurance company UnitedHealth Group on October 13.
Overall, S&P 500 companies, according to LSEG IBES Q3 earnings expected to rise 1.6% compared to the same period a year ago, after they fell 2.8% in the second quarter.
3. Oil and gas prices rising?
The energy sector could overheatwith rising prices capable of triggering new turbulence, especially due to the role played on inflation.
During the first week of October, Brent fell about 11% and WTI lost more than 8%, on concerns that persistently high interest rates will slow global growth and hit demand for fuel, even with supplies depressed by cuts from Saudi Arabia and Russia.
Statistics for oil prices remain mixed. A strong U.S. economy could support sentiment for near-term oil demand, analysts said. However, a stronger US dollar and bets on another interest rate hike in 2023 may dampen demand and push crude prices lower. Also worth considering is China. If the dragon starts pumping consumption again, demand pressure can push prices back up.
There is also maximum alert regarding gas. Workers at Chevron’s two liquefied natural gas (LNG) plants in Western Australia voted to resume strikes on Friday, with unions accusing the US oil major of reneging on a deal it made. The Australian unrest has the potential to affect global natural gas supplies. Even if this fuel does not arrive directly in Europe, fewer supplies globally risk depressing an otherwise tense market. And, therefore, cause the price to jump, as has already happened, also in the European reference benchmark.
Furthermore, in the US natural gas futures were trading at $3.34 per million British thermal units (MMBtu), up 33% in the last month and up 68% since hitting a 52-week low of $1.99 in March.
Why the leap? According to experts, demand spiked this summer as temperatures hit new records in several parts of the country; as people used more air conditioning, they needed more electricity generated from natural gas. Meteorologists also predict that gas demand will increase this winter because El Niño tends to cause colder winters, which will require more natural gas for heating. Additionally, demand for gas from Mexico has increased as more factories move there following the latest U.S.-Mexico trade deal.
Finally, starting in the spring, US producers began to reduce the number of plants they used due to low prices. Natural gas plants in use fell more than 20% from May levels. Those decisions are starting to pay off now, as supply growth has moderated even as demand has increased.
4. The debt bomb in the hands of the IMF
Financial officials and investors from around the world are heading to the Moroccan city of Marrakech for annual meetings of the International Monetary Fund of the World Bank.
The meeting comes at a time when the surge in US government bond yields, which has led to a global rise in borrowing costs, pese on hopes that inflation can be reduced without triggering a serious crisis.
Policymakers are also facing worsening global divisions and calls from large emerging economies such as China to reform the Bretton Woods global financial architecture, nearly 80 years after its creation, and make it more representative. .
Amid these tensions, the IMF and the World Bank they are trying to increase their lending. Meanwhile, the G20’s debt restructuring initiative, the Common Framework, will also be in focus as it continues to face strong criticism for delays and a lack of concrete results.
2023-10-07 08:35:00
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