This week's market highlights: CPI, ECB and earnings

Key market drivers this week: CPI, ECB and earnings

Key market drivers this week: this is no ordinary week. The market comes in with the S&P 500 at 7,718.60, the Nasdaq Composite at 26,506.99, the Euro Stoxx 50 at 6,392.93, the Ibex 35 at 20,050.70 and EUR/USD at 1.1621 as of the close on Friday, September 4. That is the real starting point. What matters now is not looking in the rear-view mirror, but understanding what could move money, sectors and expectations between today, Monday, September 7, and Friday, September 11. And this time the map is very clear: oil and geopolitics, the European Central Bank, US inflation and corporate earnings with the ability to shake up technology and consumer stocks.

The first front is geopolitical, and it should not be underestimated. The market remains highly sensitive to risk in the Middle East and to the effect any additional tension may have on energy, transport and risk premiums. When pressure rises on energy routes, the blow does not stop at crude: it spills over into inflation expectations, bond yields and equity valuations. For a short-term investor, this means one very specific thing: if oil comes under renewed pressure, utilities, airlines, energy-intensive industrials and part of discretionary consumption may once again come into the selling radar, while energy and defense retain relative support. For those following the European market and also LatAm, this link matters greatly: if Brent tightens, the dollar tends to gain traction and volatility quickly spreads to equities, bonds and emerging-market currencies.

The second major event of the week is the European Central Bank. On Thursday, September 10, the rate decision arrives at 14:15 Madrid time, with the press conference at 14:45. The consensus reflected in the calendar points to a main rate of 2.65% versus the previous 2.40%. That puts the ECB at the center of the board, not only because of the move itself, but because of the message on core inflation, growth and the next step. If Christine Lagarde takes a more hawkish tone, the impact could be felt immediately in banks, listed real estate, consumer stocks and sovereign debt. If, on the other hand, the ECB hikes but leaves a less aggressive door open for autumn, the market may reward sectors hit by high rates. There is no mystery here: more than the headline, what will matter is the language around how long financial conditions will remain tight.

The third axis is US macro. On Thursday, September 10, August PPI is also released at 15:30 Madrid time, and on Friday, September 11, comes the figure that could dominate the entire week: August CPI at 15:30 Madrid time. Calendar consensus places headline CPI at 2.5% year-on-year and core CPI at 2.4%. After the employment report released on Friday, September 4, which reinforced the idea of a Federal Reserve still uncomfortable with inflation, these figures could move the Nasdaq, Treasuries, the dollar and gold sharply. Translated into investor language: if inflation comes in above expectations, yields could rise again and technology would likely come back under pressure; if it comes in contained, the market would have reason to breathe. The US session reference you should watch therefore arrives at 15:30 in Madrid, 07:30 in Mexico City.

There is more relevant macro around it. On Monday, September 7, eurozone second-quarter GDP is revised at 11:00 Madrid time, with a forecast of 1.0% year-on-year. On Thursday, September 10, UK monthly GDP is also released at 09:00 Madrid time, with a forecast of 0.0% after the previous 0.3%. These are not decorative figures. If Europe confirms weak growth and the ECB turns more hawkish, the market may once again punish cyclicals. If the UK disappoints, that reading may extend to the sensitivity of consumption and activity in developed economies. So this week is not just about inflation: the market is also pricing in how much growth remains after so many months of high rates.

In corporate earnings, Thursday, September 10 draws the spotlight. Oracle is scheduled to report that day, with expected earnings per share of $1.73 and revenue of $19.13 billion. Adobe also reports on Thursday, September 10, with expectations of $6.07 per share and revenue of $6.69 billion. And Kroger appears on this week’s calendar with a forecast of $1.06 per share and $34.65 billion in revenue. This is no ordinary group: Oracle and Adobe offer a direct read on corporate spending in software, cloud and artificial intelligence, while Kroger serves as a consumer and margin pressure thermometer in retail distribution. If technology confirms operating strength, it can sustain part of the Nasdaq’s leadership even with tight rates. If it fails, the market will have the perfect excuse to rotate.

Market sentiment also comes in with an uncomfortable mix of strength in risk assets and fear that central banks may not be finished. That combination is often dangerous because it raises sensitivity to any surprise. When indices start from high levels, the bar for continuing to rise also goes up. That is why this week it is not enough to get the direction of the data right: you have to measure the market’s reaction to each figure. If the ECB delivers and the euro strengthens too much, it could weigh on exporters. If US CPI cools expectations of further Fed hikes, the dollar could ease somewhat and that would relieve some pressure on commodities and emerging assets. In other words: more than a week of headlines, this is a week of validation or rejection of the dominant narrative.

My reading is straightforward. Investors do not need to guess everything; they need to know where the real risk is. This week, the real risk lies in inflation, the ECB’s tone and energy. Earnings come next. If you combine those four focal points with discipline, you arrive better prepared than most. And in the market, that is already an advantage.

The key drivers this week

• On Thursday the 10th, the ECB decides on rates at 14:15 Madrid time and Lagarde speaks at 14:45.
• Consensus points to the ECB’s main rate at 2.65% versus the previous 2.40%.
• On Friday the 11th, US CPI is released at 15:30 Madrid time, 07:30 in Mexico City.
• Consensus for US CPI stands at 2.5% and core at 2.4%.
• Oracle and Adobe report earnings on Thursday the 10th and could move technology.
• Kroger serves as a thermometer for consumption and margin pressure.
• Oil remains the hinge between geopolitics, inflation and central banks.
• Watch the reaction in bonds and the dollar: that is where the clearest market reading will be.

This article is general financial information and does not constitute investment advice.

Keep reading on the blog: Weekly market analysis: strong jobs and a demanding stock market and Wall Street today: solid rebound with the Nasdaq in the lead.