Week Ahead: Brexit crunch time, US earnings season kicks off

Welcome to your guide to the week ahead in the markets.

European Council Summit

It’s make or break time for Brexit. EU heads of state hold their next summit this week, starting on Thursday. The meeting also marks UK Prime Minister Boris Johnson’s last chance to agree a Brexit deal, but the UK’s latest proposals have not met a warm reception. If nothing is forthcoming, the recently passed Benn Act obligates the PM to request an extension by Saturday at the latest. Boris seems to have some plan to circumnavigate the legislation, although Downing Street is unsurprisingly quiet on the details.

Earnings Season

The third quarter earnings season on Wall Street gets underway this week, with S&P 500 companies seen posting a year-on-year earnings per share decline for the third straight quarter.

As usual banks get the season off to a start. Financials posted decent gains in Q3, boosted by a strong +4.5% gain in September.

JP Morgan (Tuesday) is expected to deliver EPS of $2.45. In Q2 the company reported net income up 16% to $9.65 billion from last year’s $8.32 billion. EPS beat the $2.50 expected at $2.82, rising from $2.29 in the same quarter a year before. Net interest income is the concern in early September at the Barclays conference boss Jamie Dimon said he sees full-year 2019 net interest income down $500M from the last guidance.

Citigroup (Tuesday) posted good numbers in Q2 as well with EPS of $1.95 topping the $1.80 expected, although trading revenues were down. For Q3 the Street expects EPS growth of c13% at $1.97 a share. Revenues are expected to rise a little less than 1% to $18.54bn.

Wells Fargo (Tuesday) beat in Q2 but lower net interest income and comments about higher expenses acted as a drag. EPS for Q3 is seen as at $1.20, up 5.3% year-on-year, on revenues seen –5% at $20.85bn. In September the bank’s CFO lowered the net interest income for the third time in five months, with the company now seeing this key profit metric down 6% this year compared with 2018. Bulls will be clinging to anything positive on net interest income.

Netflix (Wednesday) has had a tough comedown and Wall Street has turned cold on the stock as the risk of a competitive spiral from the rise of rival streaming services threatens to derail the company’s remarkable growth. Investors have shown concern about subscriber growth rates that have started to falter. In Q2 global net adds of 2.7m massively missed expectations for 5m.

Eco data

On the high frequency economic data front we are looking at the RBA meeting minutes and Chinese inflation figures early on Tuesday, with the German ZEW economic sentiment survey likely to be key for the European session.

Wednesday sees the CPI inflation numbers for the UK and Canada, with US retail sales also in focus.

Thursday, we have the Australian unemployment data, which is a key factor in the RBA’s thinking on monetary policy, before the Phill Fed manufacturing index ahead of the US session.

On Friday the focus will be the data out of China, with GDP, industrial production and fixed asset investment figures due.

Tentatively scheduled for Friday is the US Treasury Currency Report, which outlines countries that the US deems currency manipulators.

Corporate Diary

Earnings season is upon us again, here are the notable releases this week.

Coming Up in XRay

There are plenty of great sessions coming up on XRay this year. Watch them live on XRay or catch up in a time to suit you.

Don’t forget to ask your questions in advance to xray@markets.com

Key Economic Events

There are lots of releases this week that are likely to impact the markets. Also remember that trade tensions and Brexit rumble on which make also cause volatility.