We're entering one of the busiest times of the year for corporate earnings on both sides of the pond. Our head of markets sets the scene.
Markets face a stern test this week ahead of an avalanche of corporate earnings, with high expectations attached.
In addition, with US markets hitting record closing highs after brushing off concerns over the Delta variant early last week, broader indications will also come from second-quarter GDP numbers and a two-day Federal Reserve meeting.
US GDP is expected to reveal annualised growth of 8.6%, while an inflation reading of around 3.7% could also test the Fed’s mettle in sticking with its current strategy. No immediate change to policy is immediately expected, but Fed chair Jerome Powell is likely to discuss the employment levels which the Fed are hoping to see before tapping on the monetary brakes, while also providing a gentle reminder that tapering is now on the table for discussion.
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The company reporting season, which so far has seen an estimated 90% of firms beating expectations, continues apace with the bar set high. Tech giants such as Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) will all provide updates alongside a slew of other companies, ranging from McDonald’s (NYSE:MCD) to Starbucks (NASDAQ:SBUX), and from Exxon Mobil (NYSE:XOM) to Tesla (NASDAQ:TSLA).
In the year to date at these record levels, the Dow Jones is ahead by 14.6%, the S&P500 17.5% and the Nasdaq 15.1%.
In the UK, the pace is equally frenetic as the half-year reporting season gets into full swing.
Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) all report after their US counterparts provided clues on what to expect having reported earlier this month. In particular, there could be further large releases of impairment provisions as economic recovery has proved stronger than expected, lessening the levels of bad debts.
For those with an investment banking operation, there could also be a further boost to earnings given the heightened levels of M&A activity and IPOs. In any event, given that the banks are each strongly capitalised going into the numbers, strong earnings could prompt further dividend increases, particularly with the regulatory shackles having been lifted.
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Results are also expected from GlaxoSmithKline (LSE:GSK) and AstraZeneca (LSE:AZN), Royal Dutch Shell (LSE:RDSB), ITV (LSE:ITV), BT Group (LSE:BT.A) and International Consolidated Airlines (LSE:IAG) in what will be a decisive week in driving nearer term sentiment. With the FTSE100 ahead by 8.4% and the more domestically-focused FTSE250 by 11.4% so far this year, investors will be pinning their hopes on markets making further earnings-driven progress.
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