The coming week promises to be busy for the markets with data on American inflation and the launch of the corporate results publication season in the United States, against a backdrop of still high tensions in the Middle East.
Overview of the market outlook in the days to come:
1/ ONE YEAR OF WAR
A year after Hamas’s attack on Israel on October 7, the Middle East seems on the verge of all-out war that could potentially reshape the region and upset the balance of the oil market.
Despite calls from the international community for a ceasefire, the conflict in the Gaza Strip is now spreading to neighboring countries. Israel is carrying out an air and ground offensive in Lebanon to fight against the Shiite Hezbollah movement, supported by Tehran, while considering its response to the large missile attack launched by Iran on its territory earlier this week.
The conflict is fueling investor nervousness and has caused oil prices to jump around 8% in recent days, although weak demand and abundant supply globally have limited gains.
Renewed tension between Iran and Israel could change the situation, especially if Israel decides to strike Iranian oil facilities, an option that US President Joe Biden has said he is considering.
The conflict weighs on the Israeli economy: the country has seen its credit rating downgraded by several agencies, its CDS (“credit default swaps”) – which measure the cost against the risk of default at a given maturity – skyrocket and the price of its sovereign bonds collapse.
2/ MACRO-MICRO
The third-quarter earnings season is about to get underway in the United States and is likely to test a stock market nearing record highs.
JPMorgan Chase
JPM.N
, Wells Fargo
WFC.N
et BlackRock
BLK.N publishes their results on Friday. Other results are expected at the start of the week, notably those from PepsiCo
PEP.O et de Delta Air Lines DAL.N .
According to LSEG IBES data, S&P 500 companies are expected to report third-quarter profit growth of at least 5.3% from a year earlier.
On the macroeconomic side, the consumer price index in the United States for the month of September, which will be published on Thursday, will be closely monitored to assess the extent of disinflation.
Investors are already anticipating significant rate cuts after the Federal Reserve began its easing cycle last month.
3/ JUDGMENT TIME
Highly anticipated on its budget for 2025, the French government led by Michel Barnier should present the finance bill (PLF) for next year to the Council of Ministers on Thursday.
The government plans to make an effort of around 60 billion euros in France’s budget for 2025 in order to restore public finances and meet its new objectives for reducing the public deficit.
It foresees a return to a deficit of 5% of gross domestic product (GDP) in 2025 and below 3% of GDP – in accordance with European commitments – for 2029 against a previous objective which had been set for 2027.
To achieve this, the executive wants to reduce public spending and make exceptional and temporary contributions to the wealthiest French people and large companies.
For the moment, tensions on French sovereign debt remain limited. But that could change as the Fitch agency releases its credit rating for France on Friday and the examination of the budget in Parliament is not without risk for the new Prime Minister’s retention in power.
4/ IN THE COUNTRYSIDE
In Japan, political developments are also likely to confuse investors.
Having become the new Prime Minister, Shigeru Ishiba surprised by pleading for a new economic plan aimed at getting out of deflation even though until now he had been seen as a supporter of budgetary austerity.
He has also openly displayed his hostility to a further increase in interest rates by the Bank of Japan.
The yen, which had reached records, fell below 147 against the dollar to fall to its lowest level in six weeks and Japanese stocks rebounded significantly.
It is perhaps not surprising, however, that the new supposedly “hawkish” prime minister is hiding his claws in the run-up to the snap elections, which will take place on October 27.
(Graphics by Kripa Jayaram, Pasit Kongkunakornkul, Vineet Sachdev; compiled by Dhara Ranasinghe; French version Pauline Foret, edited by Blandine Hénault)
