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Making Bank: Earnings And The Investing Week Ahead

Market Update

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What happened last week?

Global

  • Investors sent gold and bitcoin to record highs.

US

  • US chipmaker AMD announced a deal with OpenAI.

Japan

  • Japan’s ruling party elected a new leader, sending stocks soaring.
  • SoftBank agreed to buy ABB’s industrial robotics arm for $5.4 billion.

Why It Matters

Gold and bitcoin hit record highs, as investors sought shelter from a storm of financial fears, from ballooning government debt and political turmoil to the steady erosion of traditional currencies. Gold rose above $4,000 an ounce, up over 50% this year, and bitcoin crossed $125,000 – both buoyed by the age-old instinct to own what can’t be printed. It’s not just those worries that are fuelling the fire, though: global liquidity – the flow of cash, credit, and collateral that courses through the financial system – has been surging as governments borrow more and central banks make lending conditions easier. That’s creating a momentum-rich playground, where trend followers thrive while stock pickers lag.

AMD shares soared 24% after the chipmaker announced a deal to supply OpenAI with tens of billions of dollars’ worth of chips, positioning itself as a real challenger to Nvidia. The agreement gives OpenAI the right to snap up a near-10% stake in AMD, further cementing the alliance. It was the latest in a wave of mega-deals powering the trillion-dollar AI buildout, with tech firms shelling out eye-popping sums on data centres and infrastructure. Still, with a select few tech firms just passing huge sums between themselves, there are growing investor concerns that the cash is simply moving in circles.

Japan’s Nikkei stock average jumped nearly 5% in a single day, after the country’s ruling party elected a new leader who promised more spending and lower taxes – a combination that could juice economic growth and corporate profits. The plan requires more government borrowing, though, which pushed 10-year bond yields to their highest since 2008. Traders are now betting that the Bank of Japan will keep interest rates low for longer, weakening the yen and boosting exporters’ share prices. Defence stocks joined in on the rally, too, with the new government expected to spend more on military equipment.

SoftBank doubled down on its AI ambitions, snapping up ABB’s industrial robotics unit for $5.4 billion to gain a foothold in the fast-growing $75 billion robotics market. The deal gives SoftBank access to the hardware and software powering factory and warehouse automation – a move that broadens its AI play beyond chips and data centres. Switzerland-based ABB has scrapped its plans for a public listing, opting to take SoftBank’s offer instead – and use that cash to fund its growth.

 

The Focus This Week: Banks, Bonds, And A BLS Blackout

Normally, you’d expect investors to zero in on the monthly US inflation data, due Wednesday, to see whether the trend might derail the Federal Reserve’s (Fed’s) plans to cut interest rates. But these aren’t normal times: the US government shutdown has forced the Bureau of Labour Statistics (BLS) to suspend the release of all economic reports. So, the market will have to make do with what’s available in the week ahead – earnings updates from Wall Street’s biggest banks.

Goldman Sachs, Citigroup, JPMorgan, Wells Fargo, Bank of America, and Morgan Stanley are set to open their books this week. There are some pretty high hopes for the group: analysts expect the financial sector to post annual profit growth of 11.5% in the third quarter, according to FactSet, which would rank it among the best-performing sectors in the S&P 500.

They have two major reasons for that optimism.

First, busy days. Huge rallies in tech stocks, a pickup in initial public offerings (IPOs), and heavy bond trading around the Fed’s rate cut last month probably kept Wall Street’s trading desks hopping last quarter.

Second, borrowing. US banks likely saw higher income from lending – yes, even after that rate cut. Banks borrow at short-term rates (in the form of customer deposits and overnight central bank loans) and lend at long-term rates (think mortgages and business loans). Their profit comes from the difference between the two. So, when the yield curve steepens – as it did last quarter versus the same period a year ago – the gap widens, boosting banks’ net interest margins.

But investors will also keep a close eye on “loan loss provisions”. That’s the money that banks set aside to cover potential defaults by borrowers. If the banks and American Express (which reports earnings on Friday) have been boosting those holdings, it could be an early sign that higher rates, stubborn inflation, or a cooling economy are starting to squeeze folks’ finances.

The Week Ahead

  • Monday: China trade balance (October).
  • Tuesday: UK employment (August), eurozone economic sentiment (October). Earnings: Goldman Sachs, Citigroup, JPMorgan, Wells Fargo, BlackRock, Johnson & Johnson.
  • Wednesday: China inflation (September), Japan industrial production (August), eurozone industrial production (August), US inflation (September). Earnings: Bank of America, Morgan Stanley, Abbott Laboratories.
  • Thursday: UK economic growth (August), UK trade balance (August), eurozone trade balance (August), US retail sales (September). Earnings: TSMC.
  • Friday: US industrial production (September). Earnings: American Express.

    This document is provided to you for your information and discussion purposes only. It is not a solicitation for business or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions, or quotations, may be condensed or summarised and are expressed as of the date of writing. The information may change without notice and Trusted Novus Bank (“TNB”) is under no obligation to ensure that such updates are brought to your attention. Past performance is not a guide to future performance.