This week will be marked by interest rate decisions from three major central banks: the Bank of England (BOE), the Federal Reserve (Fed) and the Bank of Japan (BOJ). In addition, eurozone inflation data will be the focus of attention in the region.
Last week, the stock markets suffered a strong fall as corporate earnings weighed on investor sentiment as they assessed the direction of central bank policy. This week Market turbulence could continue in the face of critical decisions by central banks on interest rates, such as those of the Bank of Englandthe Federal Reserve and the Bank of Japan.
The earnings season will continue with influential technology companiessuch as Microsoft and Meta Platforms. In Europe, major energy companies such as Shell and BP will also report their quarterly results.
Europe
The July consumer price index (CPI) in the euro zone will be the most influential economic indicator in the regionsince the data is essential for the European Central Bank (ECB) decides on its interest rates. Eurozone annual inflation fell to 2.5% in Junecompared with 2.6% in the previous month. However, the data remained above the ECB’s 2% target due to high service sector prices. Consensus suggests annual inflation will continue to cool to 2.4% in July.
Other important data are Preliminary second quarter GDP figures for France, Spain, Italy and Germanywhich will allow us to better understand the economic trajectory of the euro zone. In particular, the German economy grew by 0.2% quarter-on-quarter in the first three months of 2024, reversing a contraction recorded in the last quarter of 2023. Strong improvement in construction investment and a recovery in exports have contributed to growth. The country’s economy is expected to grow by 0.1% in the second quarter.
In the UK, the BOE is set to decide on interest rates, a Critical event for British stocks and the pound. In June, inflation returned to the 2% target set by the BOE. However, the reading was higher than expectedor, which was expected to delay the central bank’s decision on a rate cut in August.
Inflationary pressure in the services sector and high wage growth areremain risk factors for a possible resurgence of consumer pricesAlthough committee members were divided on the path of interest rates, markets had expected the bank to cut rates by 0.25 percent to 5 percent at the meeting.
The results of large companies will continue to weigh on market sentiment, as The largest European energy companiesincluding Shell and BP, are reporting their second quarter results this week. In addition, major banks such as HSBC and Barclays will publish their quarterly results, which will serve to gauge the health of the financial sectorInvestors will also be keeping an eye on reports from pharmaceutical companies such as Merck Group and GSK.
USA
The Federal Reserve’s monetary policy meeting remains a critical event for Wall Street, as well as for world marketsThe Reserve Bank is expected to keep interest rates at 5.5% at this meeting, but I will most likely make a cut in September. The country’s inflation cooled to a stronger-than-expected 3.3% in June, further strengthening the odds that the Federal Reserve will initiate the first rate cut since 2020. However, more aggressive rhetoric than expected would make the markets nervous.
Secondly, lnon-farm payrolls July’s rate cuts are another mandate for the Fed to tighten its monetary policy. The labor market has shown signs of slowing down in recent monthsas the unemployment rate rose to 4.1% in June, the highest since October 2021. The slowing employment data also supported a scenario of a rate cut by the Fed in September.
Other important data are the June JOLTs job openings and the July ISM manufacturing PMI, which will provide a deeper look at the health of the world’s largest economy.
In addition, the US earnings season is expected to continue to drive market volatility with quarterly results from The major tech giantsMicrosoft and Meta Platforms are scheduled to report quarterly results on Tuesday and Wednesday.
Pacific Asia
The Bank of Japan’s monetary policy is considered A critical event for AsiaAnalysts expect the bank to raise interest rates for a second time and reduce bond purchases. In March, the BOJ implemented its first rate hike since 2007 and ended the negative interest rate regime in place since 2016. The Japanese yen appreciated strongly in July amid bets that the BOJ would tighten monetary policy further.
Nevertheless, Japan’s interest rate remains close to zerowell below those of other major economies. The country experienced deflation for several decades before consumer prices began to rise, thanks to Massive flexibilization policiesHowever, officials want to see sustainable consumer spending before implementing new restrictive measures.
China is about to publish its Purchasing Managers Indexes (PMI) manufacturing and non-manufacturing activity for June. Manufacturing activities contracted for the second consecutive month in June, which shows the country’s slow economic recoveryThe consensus expects the manufacturing PMI to remain contracted in July.
On the other hand, the CPI from the second quarter of Australia will boost local market volatility as monthly inflation rose to 4% in May, increasing for the third consecutive month. The Reserve Bank of Australia is expected to raise interest rates at its next meeting.
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