Weekly Market Outlook: ECB Rate Decision and US Earnings Season Kickoff

Insights – This Thursday, U.S. retail sales for September will be released. August retail sales surprised with a rise, indicating strong consumer demand and adding to evidence of a soft U.S. economic landing. The ECB is set to announce its rate decision, with markets anticipating six rate cuts by 2025 starting in October and December this year. Key earnings this week include Goldman Sachs, Morgan Stanley, and tech giants like TSMC and ASML.

Last week, the U.S. earnings season began with strong results from JPMorgan and Wells Fargo, suggesting the U.S. economy may have achieved a soft landing. Tesla's product launch on October 10 lacked highlights, causing an 8.8% drop in its stock. Meanwhile, expectations for aggressive Fed rate cuts have diminished, with a 25-basis-point cut likely in November. Fed Vice Chair Williams supports gradual rate cuts to balance inflation and employment. The Bank of Japan is expected to slow its rate hikes, with another hike predicted for January.

Key Events to Watch This Week:

• U.S. September Retail Sales

U.S. retail sales data for September will be released on Thursday. Analysts expect a 0.3% rise in September. Strong retail data may dampen hopes for aggressive Fed rate cuts.

Earnings reports from Johnson & Johnson and Procter & Gamble will also provide insights into the U.S. consumer market recovery.

• Bank Earnings and AI Companies in Focus

ASML will release its Q3 earnings on Wednesday. In Q2, ASML reported €6.2 billion in net sales, up 18% quarter-over-quarter but down 9.6% year-over-year. Q3 revenue guidance is expected to range between €6.7-7.3 billion. Despite a recovery in revenue driven by AI and storage industries, it is still below market expectations. 

According to Reuters, TSMC's Q3 revenue is estimated at NT759.69 billion ($23.62 billion), higher than analysts' expectations of NT 750.36billion ($23.33 billion), representing a 36.5% year-over-year increase and exceeding TSMC’s own forecast made in July.

• Will the ECB Cut Rates in October?

The ECB will announce its rate decision on Thursday. Deutsche Bank predicts the ECB will begin cutting rates by 25 basis points in December, with a possibility of a 50-basis-point cut.

On October 17, the ECB will announce its rate decision. Recent comments from ECB officials have dampened aggressive rate cut expectations. On October 8, ECB Governing Council member and Slovenian Central Bank Governor Bostjan Vasle told Bloomberg that even if there is a rate cut in October, it doesn’t necessarily mean there will be another one in December. A report from Deutsche Bank predicts that the ECB will begin cutting rates by 25 basis points in December and continue until rates reach 2-2.5%. The report also doesn’t rule out the possibility of a 50-basis-point cut in December.

Key Economic Calendar:

Tuesday: Fed Governor Waller speaks on the economic outlook; San Francisco Fed President Daly speaks at NYU.

Thursday: ECB President Lagarde speaks.

Friday: Minneapolis Fed President Kashkari speaks.

Key Economic Data:

Wednesday: U.S. September Import Price Index (MoM)

Thursday: U.S. September Retail Sales (MoM); ECB Rate Decision

Friday: U.S. September Housing Starts (Annualized)

Key U.S. Earnings:

Tuesday: Johnson & Johnson (JNJ), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS)

Wednesday: Morgan Stanley (MS), ASML (ASML), United Airlines (UAL)

Thursday: TSMC (TSM), Netflix (NFLX), Blackstone (BX)

Friday: Procter & Gamble (PG), American Express (AXP), Schlumberger (SLB)