Week Ahead: US & Eurozone CPI and US Bank Earnings

This week is holiday-shortened in the U.S., with the Treasury market closed for Columbus Day on Monday, although the equity market remains open. It also marks the official start of Q3 earnings season, with banks reporting results. However, attention will also be on U.S. and Eurozone CPI inflation data, which comes against a backdrop of rising interest rates in both the U.S. and Europe, with Treasury yields at multi-decade highs.

U.S. Banks’ Earnings

The largest U.S. banks kick off Q3 earnings season, with J.P. Morgan, Goldman Sachs, Citigroup and Wells Fargo due to report ahead of the open on Tuesday, October 13, followed by Bank of America and Morgan Stanley on Wednesday, October 14.

Investors will be looking closely at how the recent surge in Treasury yields and oil prices, alongside uncertainty over the economic outlook, has affected this key sector, which is considered a bellwether for the economy.

With Treasury yields at their highest levels since 2002, investors have sold bank stocks, pulling share prices around 13% below their record highs. This suggests concerns that higher borrowing costs and high prices at the pump could hurt businesses and consumers, reducing their appetite for taking on new debt. Some banks, including Bank of America, have already warned that deal-making slowed in the latest quarter.

The KBW Bank ETF (KBWB), which tracks the performance of leading US banks, trades just 3.5% higher year to date, underperforming the wider market. the S&P 500 has risen almost 14% across the same time frame. If banks paint a bleak picture of the U.S. economy, this could be market-moving. However, an upside surprise could see the sector attempt to recover.

U.S. CPI

U.S. headline CPI is forecast to rise 0.6% month over month in September, up from 0.4% in August, while annual inflation is expected to increase to 3.6% from 3.4%. Core CPI is expected to rise 0.2%, cooling slightly from 0.3% in August, although the annual rate is forecast to rise to 2.5% from 2.4%.

Wednesday’s CPI report, together with Thursday’s PPI data, will help analysts and the Federal Reserve assess the outlook for interest rates. The Fed raised rates by 25 basis points in September, with policymakers also pointing to another rate hike before the end of the year. However, markets are pricing in just a 20% probability of an October hike, rising to an 80% probability of an interest rate increase by year-end.

U.S. CPI data will also be important for gold, which has struggled as the U.S. dollar and Treasury yields have strengthened. Gold has fallen sharply from a high of $4,700 in early September to around $4,100 at the time of writing. A break below $4,100 would open the door to $3,550, the 2026 low. However, if support holds, buyers could look for a move back above $4,200.

Eurozone CPI

Eurozone CPI will be released on Friday, October 16, following Germany’s CPI report on October 13 and France’s on October 15.

With bond yields rising and the euro weakening, markets are scaling back expectations for further ECB rate hikes. This makes the CPI report particularly significant, especially if inflation comes in hotter than expected. Markets are not pricing in another ECB rate hike until potentially February, which partly explains the euro’s weakness.

EUR/USD will be firmly in focus as it trades around 1.1200, although the pair is already in deeply oversold territory.

A weaker-than-expected inflation report could trigger further downside towards 1.1000, while a significant reversal would be needed to see the pair recover above 1.1300.