What is happening this week

The third-quarter US earnings season opens with the banks, as it usually does. Six of the largest lenders are scheduled to report in a tight window. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo are due before the market opens on Tuesday, with Bank of America and Morgan Stanley following on Wednesday. Because the banks sit at the centre of the economy, lending to households and companies and moving money through the markets, their results are read as an early gauge of how the quarter went. The banks are also among the first large companies to report, so their numbers land before almost any other read on the three months just ended.

The one question that matters

Going into the week, the debate among analysts is easy to state: can record trading and dealmaking offset the squeeze on lending?

The case for a strong quarter

Markets were busy. Volatility, heavy issuance and active clients tend to lift trading revenue and investment-banking fees, the parts of a big bank that do well when deals and price swings are plentiful. Analyst consensus gathered before the release points to JPMorgan reporting around 5.90 dollars of earnings per share on roughly 51.5 billion dollars of revenue. Those are expectations, not results.

The case for caution

The other side of the bank is lending, and that is where the pressure sits. Net interest income, the difference between what a bank earns on its loans and pays on its deposits, is sensitive to the level and shape of interest rates. Loan growth has been modest and deposits cost more than they once did, and both eat into that margin. With the Federal Reserve's next decision due on 28 October, banks are managing their margins carefully. Our note on the Fed's October meeting explains why that decision matters for the whole sector.

What to read in the numbers

A profit beat on its own tells you little. These lines tell you more:

• Net interest income. Is it growing, and is the margin holding? This is the core lending engine, and the first thing analysts check.
• Loan-loss provisions. Banks set aside money for loans they expect to go bad. A jump in provisions is a quiet signal that the bank sees trouble ahead for borrowers.
• Trading and investment-banking revenue. Strength here flatters the headline, but it is volatile and can fade the next quarter.
• The consumer. Card spending, late payments and deposit balances are a direct read on household health.
• Guidance. What management says about the quarters ahead usually moves the stock more than the quarter just reported.

Why it matters beyond the banks

Bank results set the mood for the rest of earnings season. Because lenders see cash flowing through almost every part of the economy, their commentary on borrowing, spending and credit quality shapes expectations for the companies that report later in October. A cautious tone on the consumer, or a build in loan-loss reserves, can weigh on the whole market even when the banks themselves beat the estimates. A confident tone can do the opposite.

That is why these first few reports carry weight out of proportion to the six companies filing them. They are the first hard data on a quarter that everyone has, until now, only guessed at.

The honest caveat

This is a preview written before the numbers are out. The estimates above are the market's going-in expectations, not reported figures, and real results will differ, sometimes sharply. We will update this piece with the actual numbers as each bank reports, and follow the most important results with their own coverage.