September CPI, the big banks and TSMC: earnings season starts | Week-Ahead Brief #9

Last week

The 10-year Treasury yield reached 5.37% on Wednesday, its highest in 24 years. It closed Friday at 5.24%.
The 30-year mortgage rate rose to 7.40%, its seventh weekly rise in a row.
Despite that, the S&P 500 set a record close of 7,818.93 on Tuesday and ended the week up 1.2%, at 7,811.54.
The September jobs report showed just 29,000 new jobs, against about 90,000 expected. Unemployment rose to 4.2%. Good news for stocks as low jobs numbers reduces fed rate hike likelihood.
Main mover of the week: T-Mobile fell 13% on Friday, AT&T 10% and Verizon 8.8% — all after SpaceX bought airwaves to start its own mobile service. More below.
The question for this week: will stocks keep rising with the 10-year yield above 5%, especially if September inflation comes in above forecast?

The week, day by day

Monday, Oct 12

Columbus Day. The stock market is open normal hours.
The bond market is closed, so Treasury yields don't move until Tuesday.
No major US data, and no earnings of note.

Tuesday, Oct 13

Before the open: JPMorgan, Wells Fargo, Citigroup and Goldman Sachs earnings. Options suggest each stock could rise or fall 3.6% to 4.7% on the results. This will be the first look at how 5% yields are hitting loans, deals and trading.
Before the open: UnitedHealth earnings. Options suggest the stock could rise or fall 7.2% on the results, the most of any company this week. Its full-year guide of ~$20.00 a share is the number this quarter gets judged against.
Before the open: Johnson & Johnson earnings.

Wednesday, Oct 14

1:00am ET: ASML earnings. Options suggest the stock could rise or fall about 6.1% on the results. ASML makes the machines every advanced chip factory needs, so its orders show what chipmakers plan to spend next year. AI stocks will be watching this one.
Before the open: Bank of America, Morgan Stanley, BlackRock and State Street earnings.
8:30am ET: September CPI inflation, the last inflation report before the Fed decides rates on October 28. A core reading above forecast puts an October hike back on the table.
2:00pm ET: the Beige Book - the Fed's survey of business conditions across the country.

Thursday, Oct 15

Before the open: TSMC earnings. Options suggest the stock could rise or fall about 4.3% on the results. Its quarterly sales are already public. What we’ll watch is next year's spending plan, which sets out how many advanced chips Nvidia, AMD and Broadcom can get. AI stocks will move with this one.
Before the open: PNC and U.S. Bancorp earnings.
8:30am ET: September producer prices (PPI).
8:30am ET: September retail sales. August jumped 1.2%, well above forecast. A second strong month says shoppers are shrugging off higher rates.
11:30pm ET: Fed Chair Warsh in conversation with the IMF's Kristalina Georgieva, in Bangkok. His last public word before the Fed's quiet period.

Friday, Oct 16

Before the open: Truist, M&T Bank and Travelers earnings.
9:15am ET: September industrial production.
From Saturday, no Fed official speaks on policy until the October 28 decision.

Every earnings report this week is on the earnings calendar, with the share-price move, up or down, that options suggested at Friday's close. The full list of data releases is on the economic calendar, and each morning's timetable on /today.

CPI: gasoline lifts overall inflation, but the Fed watches prices without food and fuel

Headline inflation is forecast to rise to about 3.6%, from 3.4% in August. The Cleveland Fed's nowcast has 3.60%. Most of that rise is gas/oil. US crude spent last week above $90 a barrel, and pump prices usually fall in September. So the seasonal adjustment turns a rise into a bigger one (as the percentage rise is against same time last year).

The Fed tends to look past energy and watch core inflation, which strips out food and fuel. Core is forecast at 0.2% for the month, after a hotter 0.3% in August. That August reading is what pushed September's hike through. Another hot reading will likely mean another October hike.

After the weak jobs report, futures markets expect the Fed's next rate hike in December, not October. Before the report, they priced about a two-thirds chance of an October hike. After 29,000 jobs, it fell to roughly one in five, per CME FedWatch. The minutes of the September meeting, out last Wednesday, showed all 19 officials backed that hike. They split on how many more.

My read: a 0.2% monthly rise in core (as expected) keeps the next hike in December. A 0.3% makes October hike likely, with the 10-year already at 5.24%. This could finally knock stocks off their records.

The Fed hub tracks the odds, and the CPI page has every release date.

Earnings season starts with analysts expecting 29.6% profit growth

Analysts expect S&P 500 earnings to grow 29.6% on a year ago this quarter, per FactSet. They have also raised that forecast since June, from 26.7%. Normally they trim estimates as a quarter goes on.

Banks report first. High rates let them earn more on new loans and on the cash they hold. But a 7.40% mortgage slows borrowing, and fewer loans means fewer fees. I'd read what each bank says about loan demand more than whether it beats earnings this time around.

Chipmakers report next. TSMC's sales for July to September come to about NT$1.49 trillion, roughly 51% up on a year ago, from its own monthly reports. ASML guided to €11 billion to €12 billion of sales for the quarter. Neither is likely to surprise much. What isn't known is how much TSMC plans to spend next year - and that budget is ASML's order book.

SpaceX vs the phone companies

SpaceX agreed on Thursday to buy a nationwide set of 800 MHz airwave licences from Grain Management. Investors read it as SpaceX moving from partner to rival in mobile service. On Friday T-Mobile had its worst day since 2013, down 13.27%. AT&T fell 9.81% and Verizon 8.75%, its worst day since 2002, per CNBC.

The deal still needs FCC approval (which it will likely get given the current admin), but the network doesn't exist yet. Morgan Stanley thinks any threat arrives slowly, starting in rural areas.

SpaceX rose about 1% the same day. It was also the day another 319 million shares, held since before its June listing, became free to sell.

My read: a one-day fall of 9% to 13% was too much, too soon, for a network SpaceX has not built yet. The carriers get their first chance to argue back in their own earnings: AT&T on October 21, Verizon on October 26. A decent chance of a bounce back this week*.

Scorecard: how our past calls turned out

Our decision not to sell Micron options before its results was right, because the stock climbed before it reported. On September 16 Micron was $929 and options priced a 10.9% move. By October 2 it was up 15.67%, so selling options would have lost money. The reaction to the report itself, +3.03%, landed well inside the 7.6% options priced that week.

The August call that WTI, the US oil benchmark, would stay above $80 through September was also right. It settled at $90.42 on September 30.

Every entry and outcome is in the track record.

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Read this week

The full week-ahead piece, every figure sourced
The Fed page: the September rate hike and the odds of another in October
SpaceX lock-up calendar: when early shareholders can sell
Sector heatmap, showing which sectors move most after the bank results and the CPI report

Last thing

Next week earnings season gets busy. Netflix reports on October 20. Tesla, AT&T, IBM and Texas Instruments follow on October 21. There is no major US data, and the Fed stays silent until its decision on October 28.

Next Sunday's issue will cover it.

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