Five minutes: Cancel summer vacation? Reuters

2024-07-12 23:43:07

LONDON (Reuters) – Joe Biden is under pressure to withdraw from the U.S. presidential race as expectations grow for a September Federal Reserve rate cut, second-quarter earnings, a European Central Bank meeting and Britain’s king unveiling the new Labour government’s legislative plans.

Don’t rush to go on vacation.

Here are the forecasts for global markets in the week ahead from Ira Iosebashvili in New York, Yoruk Bahceli in Amsterdam, Li Gu in Shanghai, and William Schomberg and Amanda Cooper in London.

1/ Busy, busy

This is a big week in the US with attention focused on politics, retail sales, the Federal Reserve and bank earnings.

Rising inflation and interest rates are testing households’ resilience as signs of a cooling economy and inflation bolster expectations of rate cuts starting in September. Retail sales data on Tuesday might show whether slower economic growth is being reflected in consumption.

Federal Reserve Chairman Jerome Powell speaks in Washington on Monday, Goldman Sachs will release its earnings report on July 15, and Bank of America and Morgan Stanley will also report results the next day.

Markets are focused on the upcoming U.S. presidential election, with Biden’s chances of re-election in doubt. His rival, former President Donald Trump, will be formally nominated at the four-day Republican National Convention starting on Monday.

2/ Nothing to see?

The European Central Bank will almost certainly keep interest rates unchanged on Thursday, a month following cutting them for the first time in five years. Focus will be on whether policymakers will announce further rate cuts.

Eurozone inflation fell in June for the first time in three months, but rose in the dominant services sector, where inflation has not fallen this year.

Some policymakers were uneasy regarding the June rate cut and regretted committing to it weeks in advance. As a result, they are in no rush to announce their next move and will pore over the data before their September meeting.

ECB President Christine Lagarde will no doubt be asked whether the central bank is prepared to step in and buy French and other countries’ bonds if there is further turmoil. That is unlikely unless markets become more volatile or other national debt is severely affected.

3/ China’s Third Plenum China’s Third Plenum, a groundbreaking meeting usually held every five years, was originally scheduled for the end of last year. Reform is top of the agenda: it might include the most significant fiscal reform in 30 years, seeking to transfer central government revenue to cash-strapped local governments. Meanwhile, China is to release a slew of key data, including GDP, retail sales and industrial output. While strong exports provided a respite in the first half of the year, weak domestic demand and a shrinking property sector might pose challenges for the rest of the year. Deflation is a concern, and the central bank’s efforts to support long-term bond yields might also hamper growth.

Still, investors hoped fresh stimulus measures would boost sentiment. Chinese blue chips edged up following seven straight weeks of losses.

4/ The King’s Speech

King Charles is due to announce the full legislative agenda of Prime Minister Keir Starmer’s new government at 12:00 GMT on Wednesday, but investors are likely to focus more on inflation data released earlier in the day.

Headline inflation fell back towards the Bank of England’s 2% target in May, but policymakers are most closely watching service prices, which have risen by almost 6% on an annual basis.

Huw Pill, the Bank of England’s chief economist, said he was unlikely to be swayed by a set of data that would upset financial markets’ bets that the Bank of England will cut interest rates when it announces its next monetary policy statement on August 1.

The latest UK employment data, due on Thursday, will also be crucial for the Bank of England, which is concerned regarding strong wage growth.

5/ Share the love

Two European giants, Dutch semiconductor maker ASML (AS:) and German software group SAP, are due to report earnings next week.

The impact of big tech companies on the overall market is a topic worth discussing. After all, strong growth in large U.S. tech companies, led by artificial intelligence chip maker Nvidia (NASDAQ:), distorts overall performance and much depends on their results. The S&P is up 17% this year, but the equally weighted index is up just 3.8%.

Market breadth is undoubtedly a factor in Europe, too. The top 10 STOXX components make up 25% of the index, compared with regarding 20% five years ago, according to London Stock Exchange data. But STOXX has outperformed its U.S. peers, rising 7.8% so far this year, compared with a 3.8% gain for the equal-weighted index.

Europe’s stock markets may be smaller than those in the United States, but they are more widely loved.

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