Stock markets experienced a sharp sell-off last week as company earnings weighed on sentiment, while investors assessed central banks' policy paths. This week, market turbulence may continue amid critical central banks' rate decisions from the BOE, the Fed, and the BOJ.
Earnings season will continue with influential tech companies, including Microsoft and Meta Platforms. In Europe, major energy companies, including Shell and BP, are also set to report their quarterly results.
Europe
The July flash consumer price index (CPI) for the euro area will be seen as the most influential economic indicator for the region, as the data is the critical gauge for the European Central Bank (ECB) to decide on its interest rate. Annual inflation in the euro area cooled to 2.5% in June from 2.6% in the previous month. However, the data remained above the ECB's target level of 2% due to high prices in the services sector. Consensus suggests that annual inflation will cool further to 2.4% in July.
Other major data include flash second-quarter GDP readings from France, Spain, Italy, and Germany, providing insights into the Eurozone's economic trajectory. Particularly, Germany's economy grew by 0.2% quarter on quarter in the first three months of 2024, reversing a contraction in the final quarter of 2023. A strong improvement in construction investment and export recovery have contributed to the growth. The country's economy is expected to expand by 0.1% in the second quarter.
In the UK, the BOE is set to decide on the interest rate, a critical event for the British stock markets and the pound. In June, inflation returned to the BOE's target of 2%. However, the reading was higher than expected, 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 remain risky factors for a possible resurgence in consumer prices. While the committee members were divided on the rate path, markets expected the bank to reduce the rate by 0.25% percentage to 5% at this meeting.
Major company earnings will continue to weigh on market sentiment, with the European biggest energy companies, including Shell and BP, reporting their second-quarter performances this week. Additionally, big banks such as HSBC and Barclays will release their quarter results, gauging the financial sector's health. Investors will also keep an eye on reports from pharmaceutical firms like Merck Group and GSK.
The US
The Fed's policy meeting remains a critical event for Wall Street as well as the global markets. The reserve bank is widely expected to keep the interest rate on hold at 5.5% at this meeting but will most likely deliver a cut in September. Inflation in the country cooled to 3.3% in June, which was cooler than expected, further strengthening the odds for the Fed to commence the first rate cut since 2020. However, any more hawkish-than-expected rhetoric would rattle the markets.
Secondly, the non-farm payroll for July is another Fed's mandate to adjust its monetary policy. The labour market saw signs of slowing down in recent months as the unemployment rate increased to 4.1% in June, the highest since October 2021. The easing employment data also supported a rate cut scenario by the Fed in September.
Other important data includes the JOLTs Job Openings for June and the ISM manufacturing PMI for July, both of which are set to provide deeper insights into the world's largest economy's health.
Moreover, the US earnings season is expected to continue driving market volatilities with major tech giant's quarterly results. Microsoft and Meta Platforms are scheduled to report quarterly performance on Tuesday and Wednesday.
Asia Pacific
The BOJ's monetary policy is considered a critical event for Asia. Analysts expect the bank to raise its policy rate for the second time and taper bond purchases. In March, the BOJ implemented its first rate hike since 2007 and ended the negative rate regime that had been in place since 2016. The Japanese yen strengthened sharply in July amid bets that the BOJ would further tighten its monetary policy. Nonetheless, Japan's interest rate remains near zero, far below those of other major economies. The country experienced deflation for several decades before consumer prices began to rise, thanks to the massive pandemic easing policies. However, officials want to see sustainable consumer spending before implementing further tightening measures.
China is poised to release its manufacturing and non-manufacturing Purchasing Manager Index (PMIs) for June. Manufacturing activities contracted for the second consecutive month in June, evidencing the sluggish economic recovery in the country. Consensus forecasts that manufacturing PMI will remain contracted in July.
Furthermore, Australia's second-quarter CPI is set to drive the local market’s volatility as monthly inflation elevated to 4% in May, increasing for the third consecutive month. The Reserve Bank of Australia is widely expected to hike the interest rate in its next meeting.
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