Key events to watch in the week ahead: 23 – 27 October 2023

This week’s overview

This week has been broadly risk-off, as a hospital blast in Gaza escalated tensions in the Middle East, while the high-for-longer Federal Reserve (Fed) rate narrative is brought back into the limelight on hotter-than-expected US economic data. Longer-dated US Treasury yields surged to yet another fresh highs since 2009, which challenged the traction for equities. On the other hand, safe-haven gold prices head for a two-month high, rising more than 9% over the past two weeks.

Heading into the new week, here are five things to note.

US 3Q 2023 earnings season: Alphabet, Microsoft, Meta Platforms, Amazon

The earnings season will shift into higher gear next week, with notable earning releases from Alphabet, Microsoft, Meta Platforms and Amazon. As of 19 October 2023, 16% of S&P 500 companies have released their financial results, with 79% of them beating earnings expectations. This rate of outperformance is above the 5-year average of 77% and 10-year average of 74%.

25 October 2023 (Wednesday, 8.30am SGT): Australia’s 3Q inflation rate

The minutes from the Reserve Bank of Australia (RBA) meeting in October were more hawkish than expected, noting that the "Board has a low tolerance for a slower return of inflation to target than currently expected" and that "further tightening of policy may be required should inflation prove more persistent than expected."

The hawkish RBA minutes put the focus squarely on next Wednesday's Q3 inflation report, which has little room to deliver an upside surprise to prevent the RBA from raising rates in November.

The market is looking for headline inflation to rise by 5.3% YoY in Q3, easing from 6% in Q2. The RBA's preferred measure of core inflation, the trimmed mean, is expected to fall to 5% easing from 5.9% in Q2.

26 October 2023 (Thursday, 8.15pm SGT): European Central Bank (ECB) interest rate decision

The September ECB meeting has left the door open for a potential rate pause by indicating that “the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target.”

Developments since then have increasingly shifted the balance against any further tightening of monetary policy, with a considerable slowdown in September core inflation (4.5% vs previous 5.3%), surging bond yields and upside risks to oil prices amid geopolitical tensions in the Middle East.

Current expectations are pricing that a rate pause from the ECB next week is a done deal, but any guidance on where policymakers will have their eyes on to determine additional tightening will be the market focus.

26 October 2023 (Thursday, 8.30pm SGT): Advance estimate for US 3Q Gross Domestic Product (GDP) growth rate

The US economy grew by 2.1% YoY in Q2 2023, falling from an upwardly revised 2.2% in Q1. This quarter, Q3, the market is looking for GDP to increase by 4.0%.

This quarter, growth data has been robust, exemplified this week by the release of a hotter-than-expected retail sales report for September, along with stronger Industrial Production.

This quarter, Q3, the market is looking for GDP to increase by 4.3%. Much higher than this will see the market start bracing for additional Fed rate hikes in the months ahead.

27 October 2023 (Friday, 8.30pm SGT): US personal consumption expenditures (PCE) price index

US Fed policymakers have been unanimous that monetary policy will need to stay restrictive for ‘some time’ to bring inflation back to the 2% target, but the consensus around the need for additional rate increases have been more mixed.

Given the blowout US September job report and higher-than-expected headline consumer price index (CPI), any persistent inflation numbers next week may shift bets for an additional rate hike in December and amplify the high-for-longer rate narrative. Greater focus may be on the core PCE, which is the inflation measurement preferred by the Fed.

Current expectations are for both headline and core PCE to increase 0.3% from the previous month. Year-on-year, the headline PCE is expected to tick slightly lower to 3.4% from previous 3.5%, while the core aspect is expected to moderate to 3.7% from previous 3.9%.