By Geoffrey Smith
Investing.com -- U.S. retail sales and the quarterly earnings of the country's largest banks will provide a fresh snapshot of the health of the U.S. economy, while speeches from two Federal Reserve Governors later may cast light on any changes to the central bank's reaction function after another red-hot inflation report for September. Stocks are flat after a breathtaking reversal late on Thursday. Kroger and Albertsons are in merger talks, U.K. Prime Minister Liz Truss's economic plans are falling apart, and Elon Musk doesn't want to subsidize Ukraine's use of Starlink any more. Here's what you need to know in financial markets on Friday, October 14th.
1. Retail sales and the Fed reaction function
The U.S. releases retail sales data for September at 08:30 ET (12:30 GMT), a day after another red-hot inflation report that appeared to test the limits of the markets’ bearishness.
Overall retail sales are expected to have risen 0.2% from August, while core retail sales are seen falling by 0.1%. Both numbers are clearly below the monthly rate of inflation reported on Thursday and, if confirmed, would add to evidence of an increasingly clear downturn in consumer spending.
At 10:00 ET, the University of Michigan will publish its consumer sentiment data for the month. This is expected to have improved moderately, but market attention will focus more on its measure of inflation expectations.
The Federal Reserve’s Lisa Cook will speak at 13:00 ET and Chris Waller (a vocal inflation hawk) will chime in at 17:00 ET.
2. Bank earnings kick off earnings season
The U.S.’s biggest banks mark the unofficial start of the third-quarter earnings season. Sector bellwether JPMorgan (NYSE:JPM) has kicked off with a bond-trading-driven beat, while Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C), all report ahead of the open. In the second-tier, US Bancorp (NYSE:USB), PNC Financial (NYSE:PNC) and First Republic (NYSE:FRC) are also due to report.
The figures are likely to be a tug of war between improved interest margins thanks to higher interest rates, and a rise in provisions against bad loans as the economy slows, coupled with a drop in new loans. Given that unemployment has fallen in recent months, the positives are likely to have outweighed the negatives.
So far, the year has been kinder to investment banks rather than commercial ones, with JPM and Citi both down around 30% year-to-date while Morgan Stanley, Goldman Sachs (NYSE:GS) and Jefferies (NYSE:JEF)are all down less than 20%. As such, investors will be on alert for any sign of that relative performance unwinding.
3. Stocks set to open mixed; grocers' mega-merger in focus
U.S. stock markets are mixed after a breathtaking reversal late on Thursday that led to a surprisingly strong close.
By 06:20 ET, Dow Jones futures were up 66 points, or 0.2%, while the S&P 500 futures contract was flat and the Nasdaq 100 futures contract was down 0.2%. All three of the major cash indices had risen by over 2% after the higher-than-expected CPI print triggered short-covering rather than fresh selling.
Bank earnings, usually taken as a barometer of the U.S. economy’s broader fortunes, are set to dominate sentiment, but retailers will also be in focus, given both the economic data and the report of merger talks between Kroger (NYSE:KR) and Albertsons.
4. Truss expected to announce U-turn
U.K. Prime Minister Liz Truss is expected to backtrack – at least partially - from her program of unfunded tax cuts and energy subsidies at a press conference scheduled for 09:00 ET (13:00 GMT).
The Daily Telegraph, a newspaper close to the ruling Conservative Party, reported earlier that Truss is set to reinstate the rise in corporate income tax that her Treasury chief Kwasi Kwarteng tried to scrap with his so-called ‘mini-budget’ last month.
The Times, meanwhile, reported that Kwarteng is set to be fired, and that Conservative lawmakers are set to oust Truss herself, after only two months in power.
The pound gave up some of its big Thursday gains on rumors of the about-face, while U.K. government bond yields fell further on the last scheduled day of outright purchases by the Bank of England.
5. Musk pulls Starlink subsidies from Ukraine
Ukraine is finding that there are limits to Elon Musk’s charity. After subsidizing the use of satellite Internet provider Starlink to the tune of around $80 million, Musk has written to the Pentagon asking it to take over the cost of Ukraine’s Starlink use.
The news comes only a couple of weeks after Musk tried to broker peace between Ukraine and Russia with suggestions that it cede Crimea and re-run the sham referendums held in the four provinces annexed recently by Russia. Eurasia Group political analyst Ian Bremmer claimed earlier this week that Musk had spoken personally with Vladimir Putin before putting those suggestions out, and that he had refused to let Starlink operate in Crimea to avoid offending Putin. Musk denied Bremmer's claims.
Separately, Twitter’s (NYSE:TWTR) lawyers alleged that Musk is under investigation by Federal agencies over his conduct during his on-off acquisition of the social media company.