2023-07-25 02:30:00
Three central banks are expected this week, with the Fed on Wednesday, the ECB on Thursday and the BoJ in Japan on Friday. While the first two are expected to raise their respective rates by 25 bps, the Bank of Japan should try to buy time and maintain its ultra-accommodative policy, that it has been holding for years, while inflation is now above 3%.
The Fed is expected to maintain a hawkish tone, although markets expect Wednesday’s hike to be the last in this round of monetary policy tightening. Indeed, the drop in inflation and the slowdown in economic data might force Jerome Powell not to tighten monetary policy any further.
The job market is still very solid, but the next decision will not be made before September and employment might show some weakness between now and then, allowing the Fed to take a real break from the start of the school year.
On the ECB side, although inflation remains high, economic data shows a greater risk of a slowdown in the coming quarterss and the markets are beginning to think that Christine Lagarde might be forced to halt monetary policy tightening quickly.
Finally, the BoJ does not seem to be worried regarding inflation rising beyond its target and should keep its rate at the floor, on the pretext that inflation should return to close to 2% quickly. In other words, the rise in inflation is only temporary, like the ECB and the Fed in 2021.
The other big event of the week is the first half results season. Investors are waiting to be able to justify the incredible rebound observed on the financial markets, with the results and the perspectives of the companies. So far, markets have risen amid falling corporate earnings, driven in part by AI-related hopes and the prospect of central bank rates falling in the near future.
By contrast, results from the first tech companies to report results, with Netflix and Tesla last Wednesday, showed that the punishment might be brutal, should the companies be disappointed.
On the program, we will watch Domino’s Pizza, Philips, Ryanair and some US regional banks on Monday. Tuesday, Verizon, General Motor, 3M, General Electric, Spotify before the opening of the US markets, but especially Microsoft, and Alphabet, or Snap Inc and Visa, following the closing.
Wednesday, AT&T, Boeing, and Coca-Cola before the opening, then Meta, Chipotle and Ebay following the close. Thursday, investors will be interested in McDonald’s, Mastercard or Valero at the start of the day, before Ford, Intel or TMobile at the end of the day. Friday, Exxon Mobil, Procter & Gamble or AstraZeneca, will be watched closely.
In terms of statistics, on Monday, the manufacturing and services PMIs will be analyzed in Europe in the morning and in the United States in the followingnoon and they might confirm the continued contraction in manufacturing activity and the slowdown in services activity at the global level.
On Tuesday, we will discover the IFO business climate indices in Germany, as well as US consumer confidence, which might rebound once more, following rising to its highest since January 2022, in June. Wednesday will be calmer in terms of statistics, with only a few data on the housing market in the United States, pending the Fed’s decision at the end of the day.
Thursday, on the other hand, many statistics are expected, with the profits of industrial companies in China and consumer confidence in Germany, but it is above all, in the second part of the day, investors will be interested in durable goods orders, PCE prices, GDP, as well as weekly jobless claims in the United States.
Friday will also be a busy day, with inflation in the euro zone and for some of its constituent countries, including Germany, ahead of PCE prices, as well as some data on consumer confidence in the United States.
Beyond these major meetings, the markets will be attentive to the Politburo meeting in China, which should be held at the end of the week. Investors are waiting for measures from the party to support the economy, as the post-covid rebound has been undermined since the start of the year. Measures were announced on Monday, but given the high expectations of investors, they might be disappointed.
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