Earnings Season Begins on a Positive Note Amid Oil Market Concerns

China recently announced plans for a significant bond issuance aimed at addressing the growing property crisis and supporting local governments. While there was no major fiscal stimulus action, this step indicates the country's intention to stabilize its economy. Concurrently, tensions in the Middle East have escalated but have not yet resulted in outright conflict. Despite no direct attacks on Iran from Israel, there are reports suggesting that the Israeli military may be focusing its efforts on military and energy infrastructure, which has caused fluctuations in crude oil prices.

As the week started, the price of US crude oil fell below $75 per barrel, with Brent crude hovering around $78. The risks in the short term remain high, as any Israeli military action targeting Iranian energy facilities could lead to a rapid spike in oil prices. However, the cautious approach of the Chinese authorities regarding fiscal measures is likely to keep medium- and long-term investors hesitant.

Chinese President Xi Jinping seems to prefer stability over market excitement. Investors, on the other hand, are concerned that any monetary stimulus might not effectively target the necessary areas due to a lack of a comprehensive fiscal strategy. Nonetheless, there is a consensus that China desperately needs stimulus to tackle the worsening property crisis and combat deflation. Recent economic data showed that consumer price inflation in China stagnated in September, while producer prices fell by 2.8% year on year.

Impact of Economic Data

The stock markets reacted moderately to the influx of news and data. The CSI 300 index climbed by 1.50%, recovering from a dip earlier in the week triggered by previous monetary stimulus announcements. Despite this, further volatility is anticipated, and recent gains may diminish. Meanwhile, the Hang Seng index experienced a modest decline of approximately 0.40%, although it maintains a position near a pivotal Fibonacci retracement level. Gains in the Hang Seng may also slow down in the immediate future.

Commodities connected to China, particularly copper and iron ore, showed mixed performance in morning trading. Speculation is rife about whether China will resort to all necessary measures to reshape its economic outlook. The Australian dollar is currently stabilizing near a significant moving average and Fibonacci level, which may determine whether a sustained bullish trend continues or a bearish reversal occurs.

US Economic Indicators

In the US, mixed producer price data was released on Friday. Monthly figures fell short of expectations, but year-over-year data surpassed forecasts, with the core Producer Price Index (PPI) rising to 2.8%. These results did not alter the prevailing expectations that the Federal Reserve will likely reduce interest rates by 25 basis points soon, with an estimated 87% probability. However, there is growing clarity that the Fed is unlikely to undertake drastic rate changes in the upcoming months as other major central banks prepare to implement dovish policies.

The European Central Bank (ECB) is anticipated to announce another 25 basis point interest rate cut on Thursday, particularly if the September Consumer Price Index confirms that inflation in the Eurozone has fallen below the bank's 2% target. The EUR/USD currency pair has seen a breach of a key Fibonacci support level, leading to expectations of further losses. The next support level to watch is 1.0875, which may either uphold the pair's position based on a cautious approach or collapse under a more dovish outlook.

In the UK, inflation data expected on Wednesday is predicted to show that British inflation also dipped below the Bank of England's 2% target. Despite this, core inflation remains elevated near 3.5%, with the BoE Governor indicating a more aggressive stance on rate policy. This week’s inflation numbers could substantiate Bailey's assertions and push the British pound below the 1.30 level, depending on services inflation trends.

Positive Earnings Reports

On a more optimistic note, the earnings season commenced positively, with the S&P 500 finishing last week at a record high as major bank earnings exceeded expectations. For instance, JPMorgan Chase shares soared over 4% while Wells Fargo shares climbed more than 5% following impressive Q3 results. More earnings reports from banks, as well as from companies like Netflix, TSMC, and ASML, are due this week, which may further impact market sentiment.

However, not all companies fared well; for example, Tesla's shares plunged nearly 9% after the company failed to provide adequate details or a solid timeline for its much-anticipated robotaxi project during a recent unveiling. The lack of progress concerning robotaxis, which had fueled investor excitement, coupled with declining EV sales globally, raises concerns about Tesla’s growth trajectory. In contrast, this decline in Tesla’s prospects benefitted competitors, leading to gains of around 10% for companies like Uber and Lyft.

Earnings, Oil, China