EU Market Lunch break: Key Events, Movements, and Expectations

Market Update: Key Events, Movements, and Expectations

Over the past 24 hours, the financial markets have witnessed significant movements, with both the Dow and S&P 500 reaching new record highs. This surge has been fuelled by strong momentum at the start of the US earnings season, coupled with optimism about continued economic expansion. However, not all sectors were immune to volatility, as oil prices experienced a sharp drop following reports suggesting Israel’s military actions in Iran would target military installations, rather than oil or nuclear facilities. This move eased concerns of a significant disruption in global energy markets, even though Israel later countered these reports, saying it would act in its own interests. Despite the correction, oil prices remain in the red.

Earnings Season Highlights

US banks are under the spotlight today, with heavyweights such as Bank of America, Goldman Sachs, Citigroup, and Charles Schwab set to report pre-market. Investors are eagerly awaiting these results to assess the health of the financial sector, especially given concerns around rising interest rates and inflation pressures.

Read more about the banking sector here… 

In the corporate sector, Boeing saw its stock tumble amid news of job cuts and delays in jet deliveries due to a labor strike. Tesla shares also dropped by 9%, following an "underwhelming" reveal of its Cybercab robotaxi. Investors were disappointed by the product’s lackluster reception, pushing Tesla’s year-to-date performance down 12.33%. Additionally, Tesla’s Cybertruck faces regulatory challenges in Europe, with concerns over its weight and angular design preventing it from being street legal in some regions.

ZEW Economic Sentiment Report for Germany and the EU

The ZEW Economic Sentiment data for October revealed mixed results:

- Germany’s Current Conditions (ZEW) index came in at -86.9, worse than expected (-84.5) and down from the previous reading, indicating a deterioration in the perceived economic conditions in the country.

- However, the ZEW Economic Sentiment (Germany) figure improved significantly, rising to 13.1, above expectations of 10.2, and much higher than the previous month’s reading of 3.6. This suggests that while current conditions are weak, optimism about future economic developments has improved.

- Similarly, the EU ZEW Economic Sentiment index also exceeded expectations, rising to 20.1 compared to the forecasted 16.9 and the previous reading of 9.3.

These contrasting indicators show a divide between the present challenges facing the German and European economies and the more hopeful outlook for the coming months.

Upcoming Economic Events to Watch

- UK Inflation Data (October 16): Scheduled for release tomorrow, the UK’s headline inflation rate is expected to remain steady at 2.2%. Investors will closely monitor these figures to gauge the Bank of England’s next steps in monetary policy, especially with rising pressures from energy prices.

- EU Interest Rate Decision (October 17): The European Central Bank (ECB) is expected to announce its interest rate decision, with markets anticipating a cut from 3.65% to 3.4%. The ECB’s subsequent press conference could lead to market volatility, especially if President Christine Lagarde’s comments diverge from investor expectations.

- US Initial Jobless Claims (October 17): Forecasts suggest a slight rise in jobless claims, from 258k to 269k. A higher-than-expected figure could spark concerns about a slowing labor market.

- China GDP (October 18): China’s third-quarter GDP growth rate is expected to hit 5%, up from 4.7% in the previous quarter. Strong industrial production and retail sales numbers could support this growth forecast, with potential ramifications for global markets, especially in Europe, where China remains a major trading partner.

Corporate Earnings to Monitor

As the week progresses, several major companies across various sectors are scheduled to release earnings:

- October 16:

  - ASML and Morgan Stanley

- October 17:

  - Netflix, Blackstone, Western Alliance, and WD-40

- October 18:

  - Ally Financial, American Express, Comerica, and Procter & Gamble

These reports will provide insights into how companies are navigating the current macroeconomic environment, particularly in sectors like tech, finance, and consumer goods.

Final Thoughts: Market Sentiment and Volatility Ahead

With multiple key economic indicators and corporate earnings reports on the horizon, market volatility is likely to remain elevated in the coming days. The ECB's interest rate decision and UK inflation data, alongside China’s economic growth figures are the highlights of this week, as they have the potential to drive significant price movements across the markets.

Also, the US earnings season will continue to release earnings and so might shape sentiment, particularly with results from major banks and tech companies expected this week and next week. Any large deviation from forecasts could lead to unpredictable shifts in equity markets, especially as inflationary pressures and central bank policy continue to dominate the macroeconomic narrative.

Stay tuned for more information.