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This week will be decisive for markets, with monetary policy meetings of the Federal Reserve, the Bank of England, and the Bank of Japan. Additionally, Friday will see the release of the US employment report and the results of major technology companies. Here is a summary of what to expect in the markets this week.
Friday’s inflation data reinforced expectations that the US central bank will lay the groundwork for a rate cut in September this week. The Fed has held its benchmark overnight rate since July last year at between 5.25% and 5.50%. Since 2022, it has raised the policy rate by 525 basis points.
The unemployment rate, which has risen in the past three months, is expected to stabilize at 4.1%. On Tuesday, ahead of Friday’s report, JOLTS data on job openings will be released in the US.
The sharp rise in tech stocks may have set the bar too high for their results.
Alphabet (GOOGL), the parent of Google, whose revenues were one of the triggers for the massive sell-off, actually reported better-than-expected earnings. However, investors worried that increased spending on AI infrastructure could compress margins, causing shares to fall 5%.
The degree of uncertainty is higher than usual ahead of the meeting, as senior central bank officials have not spoken publicly for more than two months because of rules in the run-up to Britain’s July 4 general election.
Investors have been speculating about whether recent higher-than-expected services price inflation is enough to prevent the Bank of England from cutting interest rates from their 16-year high of 5.25%. Last month, the Bank of England’s Monetary Policy Committee voted 7-2 in favor of holding rates, but the minutes of the decision made it clear that it had been a ‘finely balanced’ decision for some policymakers who did not vote for a cut.
A surprise rally of 10 yen to the dollar from three-decade lows earlier this month has not stopped some from predicting a hike in July. They argue that the Bank of Japan can get the most bang for its buck by hiking with a recovering yen. Others worry that a fragile economy and weak consumer sentiment cannot sustain higher borrowing costs, with slowing US growth causing a drag effect.
Federal Reserve Decision
With markets currently pricing in an 88% chance of a rate cut in September, amid signs of slowing inflation and rising unemployment, this week’s policy decision by Fed Chairman Jerome Powell will be closely watched. The Fed, which concludes its July policy meeting on Wednesday, has stated it wants to ensure inflation is moving sustainably toward its 2% target before cutting interest rates.Friday’s inflation data reinforced expectations that the US central bank will lay the groundwork for a rate cut in September this week. The Fed has held its benchmark overnight rate since July last year at between 5.25% and 5.50%. Since 2022, it has raised the policy rate by 525 basis points.
Non-Farm Payrolls
The Fed’s statement on Wednesday will subject the already closely watched non-farm payrolls report to even greater scrutiny on Friday, as investors try to determine whether the latest signs of cooling in the labor market held up in July. The US economy is expected to have added 177,000 jobs in July, down from 206,000 in the previous month.The unemployment rate, which has risen in the past three months, is expected to stabilize at 4.1%. On Tuesday, ahead of Friday’s report, JOLTS data on job openings will be released in the US.
Tech Giants’ Results Continue
Tech giants’ results will continue to be released in the coming days, and potential disappointments could further unsettle markets already concerned over high stock valuations. Microsoft (MSFT) is scheduled to report its results on Tuesday, Facebook parent Meta (META) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday. Disappointing numbers could reignite the concerns that caused a massive sell-off in US stocks on Wednesday, a day when both the S&P 500 and Nasdaq experienced their worst day since late 2022.The sharp rise in tech stocks may have set the bar too high for their results.
Alphabet (GOOGL), the parent of Google, whose revenues were one of the triggers for the massive sell-off, actually reported better-than-expected earnings. However, investors worried that increased spending on AI infrastructure could compress margins, causing shares to fall 5%.
Bank of England Meeting
The Bank of England meets on Thursday, with investors undecided on whether policymakers will make their first rate cut since 2020.The degree of uncertainty is higher than usual ahead of the meeting, as senior central bank officials have not spoken publicly for more than two months because of rules in the run-up to Britain’s July 4 general election.
Investors have been speculating about whether recent higher-than-expected services price inflation is enough to prevent the Bank of England from cutting interest rates from their 16-year high of 5.25%. Last month, the Bank of England’s Monetary Policy Committee voted 7-2 in favor of holding rates, but the minutes of the decision made it clear that it had been a ‘finely balanced’ decision for some policymakers who did not vote for a cut.
Bank of Japan Decision
The Bank of Japan concludes its latest policy meeting on Wednesday, and speculation about the possibility of a rate hike is growing as key policymakers, including the Prime Minister, have suggested the need for some near-term normalization of monetary policy. The weakening yen, which affects household and business spending, has made the exchange rate one of the central issues at the Liberal Democratic Party’s leadership convention in September.A surprise rally of 10 yen to the dollar from three-decade lows earlier this month has not stopped some from predicting a hike in July. They argue that the Bank of Japan can get the most bang for its buck by hiking with a recovering yen. Others worry that a fragile economy and weak consumer sentiment cannot sustain higher borrowing costs, with slowing US growth causing a drag effect.
