Week Ahead: US30 braces for big bank earnings

• US30 ↑ 9% year-to-date, less than 2% away from ATH 
• Big bank earnings + Powell speech = volatility?
• JPMorgan & Goldman Sachs = 14% of US30 weight
• US CPI expected to be delayed due to US shutdown
• Technical levels: 47000, 46300 & 45800

A cocktail of high-impact events could spark fresh trading opportunities in the week ahead.

Investors will have their eyes on the IMF and World Bank annual meeting, third-quarter earnings from US banks and a speech by Fed Chair Jerome Powell.

US political risks will remain in focus as the government shutdown drags on while geopolitical developments in the Middle East could impact overall sentiment.

Monday, 13th October

• CNY: China trade
• GBP: UK BRC Retail Sales
• Oil: OPEC Monthly Report
• Annual Meetings of International Monetary Fund

Tuesday, 14th October  

• GER40: Germany CPI, ZEW survey expectations
• GBP: UK jobless claims, unemployment
• US30: JPMorgan Chase, Goldman Sachs earnings, Fed Chair Jerome Powell speaks
• US500: Citi, Wells Fargo and BlackRock earnings
• IMF releases its latest World Economic Outlook 

Wednesday, 15th October

• CN50: China PPI, CPI
• EUR: Eurozone industrial production
• JP225: Japan industrial production
• US30: US CPI, Empire Manufacturing, Fed Beige book

Thursday, 16th October

• AUD: Australia Unemployment Change
• GBP: UK GDP, Industrial Production, Manufacturing Production
• EUR: Eurozone Balance of Trade
• US400: US PPI, Retail Sales, Initial Jobless Claims
• WTI: US EIA Crude Oil Stocks Change

Friday, 17th October

• USDInd: US Building Permits, Industrial Production

But the spotlight shines on FXTM’s US30 which tracks the benchmark Dow Jones Industrial Average index.

This index has gained almost 10% year-to-date, hitting an all-time high above 47,000 last Friday. Since then, prices have slipped thanks to US political risks and questions around the sustainability of the bullish momentum.

Here are 4 factors that could rock the index:

1) US bank earnings

Third-quarter earnings season unofficially kicks off on Tuesday 14th October, led by banking giants JPMorgan, Goldman Sachs, Citigroup, BlackRock and Wells Fargo.

US banks are expected to report strong earnings thanks to a rebound in investment banking. Easing regulations and expectations for lower US interest rates have boosted mergers and acquisition deals.

It is worth noting that financials make up almost 27% of the US30’s weight with JPMorgan and Goldman Sachs accounting for over 14%!

So, the upcoming earnings from US banks are a big deal for the index. 

• Markets are forecasting a 4% move, either Up or Down, for JPMorgan Chase stocks post-earnings
• Markets are forecasting a 4.1% move, either Up or Down, for Goldman Sachs stocks post-earnings.

2) Fed Powell speech

Fed Chair Jerome Powell will be back under the spotlight on Tuesday as he speaks at the NABE Annual meeting. In recent speeches, the Fed head has avoided discussing monetary policy which has been interpreted as neutral-dovish by investors.

Should Powell offer any clues on future policy moves, this may trigger outsized reactions in the absence of US government economic data.

• A dovish sounding Powell may reinforce Fed cut bets, boosting US equities including the US30.
• A hawkish sound Powell may shave Fed cut bets, weighing on the US 30 as a result.

Note: Traders are currently pricing in a 96% probability of a Fed rate cut in October with the odds of another cut by December at 80%.

3) US government shutdown

If the US government shutdown drags into the new week, this could mean further delays of key reports including the US September CPI scheduled for Wednesday 1,5th October.

Note: September’s US jobs report, which was scheduled for release last Friday 3rd October has been put on hold until the shutdown finishes.

There are reports that the US Bureau of Labour Statistics plan to publish the CPI report despite the shutdown, but this may come at the end of the month. 

Note: There have been 15 shutdowns since 1980 with the longest shutdown occurring during Trump's first term in November 2018.

Shutdowns represent a major element of uncertainty to the US economy and are quite damaging.

The Fed is basically in the dark amid the pause in government data ahead of its rate decision at the end of October.

4) Technical forces

The US30 is respecting a bullish channel on the daily charts with prices trading above the 50, 100 and 200-day SMA.

• A solid breakout and daily close above 47,000 may open a path toward the all-time high at 47,092.2 with the next psychological level at 47,100.

• Should prices slip below 46,300, this could trigger a selloff toward 46,300. Weakness below this point may open a path back toward the 50-day SMA at 45,600.