Rising energy prices and inflation anxiety are the background for this week’s start to third quarter U.S. earnings season.

The annual meetings of the World Bank (and International Monetary Fund) begin on Monday. However, the event is overshadowed in a scandal involving data manipulation that could threaten Kristalina Georgieva’s career as IMF chief.

The following five stories are likely to be the most popular in the market this week.

1 EARNINGS NON-STOP

Some of the world’s biggest banks kick off U.S. earnings, just as investors fret https://www.reuters.com/business/buying-dip-not-so-fast-some-wall-st-banks-say-2021-10-06 over inflation, surging energy prices and the upcoming tapering of the Federal Reserve’s $120 billion monthly stimulus.

Banks smashed profit estimates https://reut.rs/3oGkTU3 in the second quarter as the economy rebounded, with Wells Fargo (NYSE:), Bank of America Corp. (NYSE:) Citigroup JPMorgan Chase (NYSE 🙂 reporting a profit of $33 Billion.

The momentum may have slowed down in the third-quarter; financial earnings are expected to increase by 17.4% in comparison to almost 160% in Q2, according I/B/E/S data compiled from Refinitiv.

The expected growth in wider earnings is 29.4%. This puts them on pace to surpass the financial sector’s first five quarters. BlackRock (NYSE 🙂 and JPMorgan release Wednesday’s earnings; Bank of America and Wells Fargo. Morgan Stanley Later in the week, (NYSE:), and Goldman Sachs(NYSE:).

Graphic: Earnings growth: Financials vs S&P 500 – https://graphics.reuters.com/USA-MARKETS/jnpweymajpw/chart.png

2/ CHINA CHECKUP

As stagflation fears simmer globally, China’s economy https://reut.rs/2WT1aF7 gets a crucial health check, with data spanning bank lending to trade and inflation.

    Thursday’s factory gate prices for September are in focus after surging to 13-year peaks in August on soaring raw material costs. These costs, which include ever-higher prices for coal, have only risen since then. The government is rationing power https://reut.rs/3BqhGv4 to heavy industry, causing factory output to contract.

    The crisis is fanning worries about a slowdown, given contagion risks from Evergrande’s debt woes https://reut.rs/3iIkZGF and Beijing’s crackdown on tech firms.

    While the impact is being felt as far as Wall Street, China’s neighbours and biggest trading partners may bear the brunt.

Graphic: China thermal coal prices surge on strong power demand, tight mine supplies – https://fingfx.thomsonreuters.com/gfx/ce/gdvzywrmapw/ChinaCoalPricesOct2021.png

3 – OLD INSTITUTIONS, NEW SANDALS

The great and good of central banking, finance and politics come together at the annual World Bank and IMF https://meetings.imf.org/en/2021/Annual meetings from Monday.

There’s plenty to chew over: The global lender will unveil its new economic projections https://www.reuters.com/business/imf-sees-global-gdp-2021-slightly-below-prior-forecast-6-2021-10-05, plans to redistribute $650 billion of SDRs – the IMF’s own currency – to help poorer nations, while Ireland has dropped its opposition to overhauling global tax rules https://www.reuters.com/business/ireland-backs-global-tax-deal-gives-up-prized-125-rate-2021-10-07.

However, the real elephant in this room is Georgieva, the IMF’s chief. This follows claims Georgieva made that she pressured World Bank staffers to modify data in favour of China when in her previous position.

The allegations – firmly rejected by Georgieva https://www.reuters.com/business/imf-chief-georgievas-lawyer-claims-data-probe-violated-world-bank-staff-rules-2021-10-07 – will cast a cloud over the fund’s initiatives to aid the world’s post-pandemic recovery.

Graphic: Largest SDR allocations in USD terms – https://graphics.reuters.com/IMF-RESERVES/ALLOCATION/zgvommnezvd/chart_eikon.jpg

4/ UK DATA BONANZA

As Britain’s economy shows signs of slowing https://reut.rs/3Dh8I43 amid rising prices, supply chain disruptions and staff shortages, upcoming data releases will grab attention.

The September unemployment count, along with the August unemployment rates, and wage data, will be published on Tuesday. On Wednesday, the August gross domestic product data and industrial/manufacturing numbers are released.

Markets are betting the Bank of England will join its peers https://reut.rs/3mDvrRg and raise interest rates in February. However, while the yields on British gilt have risen significantly, expectations have not helped sterling.

Graphic: UK economy loses steam as post-lockdown shortages mount – https://graphics.reuters.com/BRITAIN-ECONOMY/byprjlyydpe/chart.png

5/ DANCING ONCEILING

The dollar tends to rise towards the close of every year due to U.S. banks scrambling to comply with cash reserve rules and funds rebalancing their portfolios. There are more support options this year.

The Fed appears to be ready for a taper of its stimulus. Although the “real” yields in America, which are adjusted for inflation and at -0.9% is very negative, it compares favorably to Germany’s of -1.9%. With the ECB in no rush to tighten policy https://reut.rs/3DnxqzH, the gap could widen.

Stocks have declined and increased demand for safe assets like the dollar, second only to slowing economic growth. Another reason to invest in the greenback is the rally in commodities which are primarily traded in dollars.

The premium for greenbacks access is increasing, as euro-dollar swap spreads over three months are now at 16 basis points. This is more than double the September levels.

What are the Headwinds? Headwinds? Another risk is the debt ceiling deadline, kicked out to Dec 3 https://reut.rs/2Yzr5lO; a default while unlikely, could prove catastrophic. The dollar may still be able to catch a bid even if it does not, just as in 2008

Graphic: Dollar swaps – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwewglzvw/swaps.PNG