It would seem that central banks globally have turned decidely more hawkish. The US Fed has raised interest rates for the first time since 2023. The European Central Bank has already hiked interest rates twice this year.
Elsewhere, the Bank of Japan has lifted rates to 1.25%. The Reserve Bank of Australia has raised its cash rate target by 0.25%. It was the fourth rate hike this year. It takes borrowing costs to their highest since 2011. The Bank of an England has been a notable holdout. But the bank’s Monetary Policy Committee has stressed that inflation, which stood at 3.1%, must return to its 2% target.
It is now the turn of the Monetary Authority of Singapore (MAS) to show its hand. In August, the rate of inflation edged up to 2.3%, which is the highest since July 2024. Prices accelerated for food, transport, and clothing and footwear.
The response by MAS to higher prices will be closely watched, given that high energy prices could persist. It has already tightened monetary policy in April and July. A third round of tightening cannot be ruled out, if imported inflation should creep into the local economy.
Staying with high energy prices, crude oil price could remain volatile after Donald Trump grovelled to Vladimir Putin to release more diesel to the US. It is a bizarre decision. It is unclear how a temporary reprieve on sanctioned Russia oil would lower prices, given that available diesel is still in short supply. It merely shifts the problem from one place to another.
On the corporate front
Banks take centre stage as third-quarter earnings season kicks off in America. On the whole, US lenders are expected to report higher profits with earnings growth of up to 20% on the cards. Whilst investment banking and trading revenue could be strong, loan growth could be a focus of attention as borrowing costs rise….
…. Bond yields are rising and that has deterred some companies from launching their IPOs. Meanwhile, higher interest rates could prompt savers to look for more competitive rates outside of banks. That could force banks to offer better rates that could in turn crimp their net interest income.
The list of US banks reporting earnings include JPMorgan Chase (NYSE: JPM), Citibank (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Goldman Sachs (NYSE: GS).
Domino’s Pizza (Nasdaq: DPZ) is expected to report higher third-quarter earnings on revenue that improved modestly. The flat-bread maker has been launching promotional deals amidst competitive pressures.
The world’s largest contract chipmaker Taiwan Semiconductor Manufacturing Company (NYSE: TSM) has already reported record third-quarter revenue. That bodes well for its upcoming earnings report. TSMC is in pole position to capitalise on the AI buildout. It is also in a good position to raise prices, if it wants to.
Charles Schwab (NYSE: SCHW) could report a big jump in third-quarter earnings. The financial advisor is expected to benefit from strong market growth in both retail brokerage and wealth management. However, there are concerns that AI could erode customer stickiness, which Charles Schwab could be forced to address.
If you’d like to learn more investing concepts, and how to apply them to your investing needs, sign up for our free investing education newsletter, Get Smart! Click HERE to sign up now.
Get more stock updates on our Facebook page. Click here to like and follow us on Facebook.
David does not own shares in any companies mentioned in this article.
