Week in a Glance: Central Banks Amid Peak Earnings Season

October turned out to be an extremely successful month for the US stock market. The past week played a significant role in this. The main events of the week were meetings of a number of key central banks (ECB, Japan and Canada), as well as the publication of data on US GDP for the first quarter (first reading).

Against the background of low inflation, the Bank of Japan naturally did not change anything in the parameters of monetary policy and does not plan. But the Bank of Canada announced that it could raise the rate earlier than previously predicted. The reason is obvious - inflation. Although, as is obvious, the ECB, for example, continues to believe that inflation is a temporary phenomenon that will dissipate by itself, which means that ultra-soft monetary policy is the best option for the Central Bank.

Markets were taken by surprise by the ECB's position as more aggressive rhetoric was expected amid apparently high inflation. But the European Central Bank has its own vision, which is that you need to look not at the inflation readings for the past or current month, but at the average inflation for the period (which is not known). So, if you carefully calculate the average, it turns out that inflation in the Eurozone is below the target.

As if deciding to cast the ECB in an unfavorable light, Friday's inflation data in the Eurozone came out at a 13-year high, more than double the ECB's target.

But after such results of the ECB meeting, the markets began to think, what if the Fed does the same this Wednesday and instead of the expected tapering starts calculating the average inflation values? In our opinion, this is largely due to the growth of the US stock market last week. Moreover, the data on US GDP came out very disastrous and give the FRS a reason to include a backward one in the issue of tightening monetary policy.

Well, another reason for the growth of the US stock market, of course, was the reporting season. It peaked last week and continues to beat forecasts in both earnings and earnings 80% of the time. Although not without surprises: half of the FAAMG participants managed to show reports worse than the markets expected. However, it did not help to stop the bulls.

The week ahead is unlikely to be a week of rest. We are waiting for the announcement of the results of the FOMC meeting and the decision of the Bank of England - if not actions, then at least signals about future actions in terms of tightening monetary policy are expected from both Central Banks. In addition, a block of data on the US labor market, including numbers on NPP, will be released on Friday. Although the reporting season has passed its peak, it will be extremely busy and active. We are also waiting for the next meeting of OPEC +. In general, it will definitely not be boring.