Strong Earnings Before Fed Meet

Strong Earnings Before Fed Meet

After a rocky start to the earnings season, things improved markedly towards the end of last week with strong figures from Alphabet, Microsoft, and Amazon, which helped spark sharp upward momentum for the stock market, especially the NASDAQ.



Strong Earnings Before Fed Meet
Strong Earnings Before Fed Meet

This week the flow of corporate earnings will be even faster, but will be sharing the stage with other key developments including the October FOMC meeting and the first estimate for third-quarter US GDP. 30% of the S&P 500 Index will be reporting this week, including Apple ($AAPL) and Exxon Mobil ($XOM), two of the most highly capitalized companies in the world.

The Fed is not expected to make any change to monetary policy at its latest meeting, which begins on Tuesday and culminates with an announcement on Wednesday afternoon, but the outcome could prove to have a big influence on the financial markets, as the language in the statement, particularly that of the forward guidance, is likely to shape expectations for the final meeting of the year. A rate hike at the December meeting is still seen as a distinct possibility — should such a move be firmly on the cards, I would expect the Fed to pave the way with some congruent amendment to its guidance. If the statement is effectively unchanged from before, it would diminish my expectations for tightening before 2016.

A first look at third-quarter GDP will become available on Thursday morning when the Bureau of Economic Analysis releases its advance estimate. Growth is expected to have decelerated substantially from the second quarter when the economy expanded at an annual rate of 3.9%. The consensus for the third-quarter is for growth of just 1.7%, with exports acting as a major drag, driven by the strength of the US dollar. A surprise to the downside might seriously scupper anticipation of Fed tightening before year end.

One area of the economy that is expected to have provided a boost in the third quarter is housing, particular the new home sector. We have data released on the front on Monday in the new home sales report for September. Gains were sharply higher in both July and August (+5.7% and +12.0%, respectively), though a slight decline is anticipated for September.

With so much potentially-influential activity coming up this week, there has been an unsurprisingly cautious tone to early trading in the stock market this morning. Shortly after the opening on Wall Street, the Dow Jones was trading down 7 points or 0.04% at 17,639, while the S&P 500 slipped 0.20% to 2070.1 and the NASDAQ 100 fell 0.14% to 4617.3.

In the forex market, the dollar move sharply lower against the Japanese yen, after Koichi Hamada, an economic advisor to Japanese Prime Minister Shinzo Abe, said there was no need for the Bank of Japan to hurry further stimulus measures. ‘As long as the jobs-to-applicant ratio and unemployment rate show the labor market remains tight, the BOJ can wait for a while,’ said Mr Hamada. After the People’s Bank of China eased late last week, speculation had been rife that the Bank of Japan could be set to ease imminently. USD/JPY fell 0.54% to 120.82. 


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