Written by Norman Isaac Mwambazi

What to expect this week: Big banks kick off Q3 earnings season, Coinbase, CPI inflation data

For most companies whose fiscal years align with the calendar year, their third quarter of the 2021 fiscal year (Q3 …

For most companies whose fiscal years align with the calendar year, their third quarter of the 2021 fiscal year (Q3 FY2021) ended on September 30, 2021. While some have already released their earnings reports for the quarter, others are yet to do so, like big American multinational banks, which are set to release theirs this week.

Another thing to look out for this week is the Consumer Price Index data from the U.S. Bureau of Labour Statistics for the month of September, and this is expected to include a report on the state of inflation in the U.S.  

In Q3, analysts expect companies in the benchmark S&P 500 Index (SPX) to post an average growth of 27.6%, but this will be a huge fall from the 90% growth these companies registered in the second quarter of the 2021 fiscal year (Q2), according to data from FactSet. Nevertheless, this 27.6% growth will be the third-fastest growth for the SPX in more than a decade.

From the 21 components of the S&P 500 that have already reported their Q3 earnings, most of them (15) have cited supply chain disruptions as a major factor that negatively impacted their earnings and revenues in Q3. 14 companies have cited labour shortages and associated costs, 11 companies have said in their reports that they were affected by costs arising from the COVID-19 pandemic. In contrast, another 11 companies said that transportation and freight costs in Q3 disrupted them.

These companies include big names like sports and leisure apparel maker Nike Inc. (ticker: NKE) and logistics company FedEx (ticker: FDX). John Butters, the Vice President and Senior Earnings Analyst at FactSet, said that these disruptions are expected to be mentioned by other companies while reporting their Q3 earnings.

Other factors of concern by companies are the imminent hike of interest rates by the Federal Reserve Bank as it begins the tapering process and the impact of inflation on the broader U.S. economy in the coming months. It should be noted that the Federal Reserve Bank has kept interest rates at near-zero rates since the onset of the COVID-19 pandemic in March last year.

However, if the Fed takes its breaks of interest rates, it will work to the advantage of big banks as it will allow them to charge higher interest rates on loans, boosting their profits in their key lending businesses.

All banking giants in the U.S. that make up the “Big Bank” category like Bank of America (ticker: BAC), JPMorgan Chase (ticker: JPM), Morgan Stanley (ticker: M.S.), Wells Fargo (WFC), and Goldman Sachs (ticker: G.S.) among others will release their Q3 FY2021 earnings reports this week, and analysts are looking out for things like their revenue and Earnings Per Share (EPS) in the third quarter, as well as how their net interest margins and benchmark interest rates expand or stabilize this year.

As the economy continues to recover from the effects of the COVID-19 pandemic, banks may further release loan loss reserves they had set aside to guard themselves against potential defaults and non-payments.

RBC Capital Markets analyst Gerard Cassidy said that they expect Q3 FY202 to register better EPS results and revenue growth on a year over year basis. Other key themes Cassidy expects from bank earnings reports this week are more signs of net interest margin (NIM) stabilization, positive outlook guidance on credit, growth in the consumer loan, residential mortgage and commercial real estate mortgage portfolios, and commercial and industrial loan growth. The analyst advised investors to pay close attention to what the banks will say about their core operating expenses to see if the financial institutions are starting to feel non-incentive compensation wage pressure.

With a growth of over 30%, the financial sector is the second-best performer in the S&P 500 year to date, only behind the energy sector.

Consumer Price Index (CPI)

On Wednesday, October 13, 2021, the U.S. Bureau of Labour Statistics will release the Consumer Price Index (CPI) for September, which is expected to show that consumer prices grew at roughly the same as in August.

Consensus economists expect the CPI to have grown 0.3% in September over August and as high as 5.3% in the same month last year. This increase is attributed to energy prices, with products like natural gas and crude oil having their price spike due to an increase in demand last month. Consensus economists say that the CPI has registered an annual growth of 4.0% even without food and energy prices that are more volatile.

In an email to clients on Friday last week, Greg McBride, the Chief Financial Analyst and Senior Vice President of Bankrate, said that they are keenly waiting to see how the price increases broadly across categories, adding that, “While used car prices, airfares, and lodging have all dropped a bit, underscoring the idea that higher inflation might indeed be transitory, increases in others like shelter costs might just be heating up.”

The heightened level of inflation in the U.S. has been evidenced in the skyrocketing crude oil futures and commodity prices. In September, crude oil futures rose to their highest level since 2014, and the months’ jobs report released by the U.S. Labour Department last week also showed several inflationary pressures in the labour market.

Economic calendar

Monday: N/A

Tuesday

NFIB Small Business Optimism, September (99.5 expected, 100.1 during the prior month);

JOLTS Job Openings, August (10.938 million expected, 10.934 million during the prior month)

Wednesday

MBA Mortgage Applications, the week ended October 8 (-6.9% during the prior week);

Consumer price index, month-over-month, September (0.3% expected, 0.3% during prior month);

CPI excluding food and energy, month-over-month, September (0.2% expected, 0.1% during prior month);

CPI year-over-year, September (5.3% expected, 5.3% during prior month);

CPI excluding food and energy, year-over-year, September (4.0% expected, 4.0% during prior month);

Real Average Hourly earnings, year-over-year, September (-1.1% during the prior month);

Real Average Weekly earnings, year-over-year, September (-1.4% during the prior month);

FOMC meeting minutes

Thursday

Initial jobless claims, the week ended October 9 (325,000 expected, 326,000 during the prior week);

Continuing claims, the week ended October 2 (2.696 million expected, 2.714 million during the prior week);

Producer price index, month-over-month, September (0.6% expected, 0.7% during prior month);

PPI excluding food and energy, month-over-month, September (0.5% expected, 0.6% during prior month);

PPI, year-over-year, September (8.7% expected, 8.3% during prior month);

PPI excluding food and energy, year-over-year. September (7.1% expected, 6.7% during prior month)

Friday

Empire Manufacturing, October (25.0 expected, 34.3 during the prior month);

Retail sales, month-over-month, September (-0.2% expected, 0.7% during prior month);

Retail sales excluding autos and gas, month-over-month, September (0.6% expected, 1.8% during prior month);

Import price index, month-over-month, September (0.6% expected, -0.3% during prior month);

University of Michigan sentiment, October preliminary (73.5 expected, 72.8 during the prior month)

Earnings calendar

Monday: N/A

Tuesday: N/A

Wednesday:

JPMorgan Chase (JPM), BlackRock (BLK), First Republic Bank (FRC), Delta Air Lines (DAL) before market open

Thursday

Bank of America (BAC), Domino’s Pizza (DPZ), Walgreens Boots Alliance (WBA), The Progressive Corp. (PGR), UnitedHealth Group (UNH), U.S. Bancorp (USB), Wells Fargo (WFC), Morgan Stanley (M.S.), Citigroup (C) before market open; Alcoa (A.A.) after market close

Friday

PNC Financial Services (PNC), Truist Financial Corp. (TFC), Coinbase Global (COIN), The Charles Schwab Corp. (SCHW), Goldman Sachs (G.S.) before market open.