Week of July 15

The previous week focused on monetary policy expectations with the release of US June inflation figures and testimony by Federal Reserve Chair Jerome Powell to Congress seen as supportive of upcoming interest rate cuts.

Inflation will also be a theme for the following week with consumer data from several countries including Japan and the final reading from the Eurozone, all bridging the publication of Chinese GDP and the ECB's interest rate decision.

Week in Review

News from the US was the main focus for markets throughout the week, starting with Fed Chair Powell's biannual testimony to Congress, where he maintained that further data is needed. However, he noted signs of easing in the labour market, giving his remarks a dovish tone and solidifying expectations of a September rate cut. Those expectations grew to around 90% after US June inflation figures saw the first negative month since May 2020 and a notable decline in shelter costs.

European markets faced elections in France and Britain, where left-leaning candidates gained majority support. With no single block holding a majority in the UK parliament, a hung parliament is expected to delay meaningful reforms until new elections within a year, a scenario markets seem to accept. UK monthly GDP exceeded forecasts, growing 0.4% versus 0.2% expected and lifting the three-month average.

As forecast, New Zealand kept rates steady, but comments signalled greater dovishness, moving markets to price in an October cut.

Hurricane disruptions to US oil production and ports lasted a couple of days. Maintaining a price level above the $80 per barrel handle may be critical for medium-term price action.

ECB speakers differed on the need for an imminent rate cut ahead of their blackout period mid-week.

Reformist candidate Masout Pezeshkian won Iran's presidential election and seeks to renew nuclear deal talks. More high-profile US Democrats called on President Joe Biden not to seek re-election amid other party support. Reports indicated a potential Gaza interim government peace deal.

Biggest Market Movers

• USD/JPY plunged over 2.50% on Thursday after US inflation in an apparent BOJ intervention, though not officially confirmed.
• Japan's Nikkei hit consecutive record highs early in the week on chipmakers, but this was later reversed due to the strength of the Yen.
• Crude eased on Hurricane Beryl's dissipation and Middle East tensions hope but headed to its 5th week of gains after slower US CPI.
• The Nasdaq again reached an all-time peak after TSMC reported the largest export jump since 2022 and strong sales.
• Sterling gained 1.50% as markets observed UK Prime Minister Starmer's new cabinet and better-than-expected economic numbers.

Week Ahead

Focus on ECB

The main focus is likely the ECB rate decision on Thursday. The central bank is expected to keep policy unchanged while markets gauge the effects of the recent cut. Markets will scrutinise President Christine Lagarde's comments for September clues. With EUR/USD distancing itself from 1.08, reclaiming 1.09 may open the door to 1.10.

Investors will also closely watch Federal Reserve speakers this week for pre-meeting guidance ahead of the FOMC blackout starting Saturday. Should Fed speakers lean towards dovishness, gold may shoot to fresh record highs, leaving behind critical support at $2320 per ounce.

Inflation Week

Canada will be the first to update inflation metrics, with headline CPI forecast steady at 2.9% annually, though the BOC's preferred trimmed mean is seen ticking down to 2.8%. After five weeks of strength, the 1.36 bounce in USD/CAD may see a reversal. UK inflation is seen pausing at 2.0% annually but core steady at 3.5%. Eurozone confirmation of preliminary 2.5% CPI and 2.9% core is expected. Japan's inflation is projected to remain unchanged at 2.8% annually, but core easing to 2.4%.

China Decision Time

Monday kicks off the Chinese Communist Party's third plenary session outlining reforms and policies, anticipated supporting foreign/technology investment and commodities seeking housing industry aid. China also releases its second-quarter GDP, which is the first major country and is expected to hold around 5.0% annually versus the first quarter's 5.3%.

Other Events & Earnings

Monday has Eurozone industrial production. US retail sales are published on Tuesday. Wednesday notes US building permits. Thursday includes UK jobs and Japan trade. On Friday, Canadian retail sales are expected.

Earnings season ramps up with names like Goldman Sachs, BlackRock, UnitedHealth, Bank of America, Morgan Stanley, ASML, Johnson & Johnson, Netflix, Abbott Labs, American Express and Schlumberger.