Week of July 24

Earnings season kicked off to a somewhat positive start, helping US indices hit new highs but disappointing GDP data from China and tech reports hurt sentiment around the globe. Focus now shifts to the FOMC and ECB rate decisions next week, starting off with flash PMI figures from major economies.

Top Events in Review

The week started with a divergence in economic prospects, as investors seem to be giving up on significant post-lockdown growth in China but are more optimistic about the US avoiding a recession. That was hammered home with Chinese Q2 GDP figures coming in below expected, weighing on commodities and international markets, but US shares were resilient on better earnings from major banks up until some downbeat earnings on Thursday.

UK inflation came in less than expected, leading to speculation that the BOE wouldn't go through with as many hikes as previously feared, giving the FTSE a boost. Headline and core inflation dropped more than expected. 

The yen fluctuated on seemingly contradictory statements by BOJ Governor Kazuo Ueda, who suggested that yield curve distortions had eased considerably on Sunday and control might no longer be necessary. Then in the middle of the week, he appeared to walk that back, insisting no change in the monetary policy being contemplated. 

In the Eurozone, final CPI and GDP figures were revised higher, with the latter implying that the shared economy managed to escape a technical recession by the absolute minimum, with 0% growth in Q1. 

Saudi Arabia announced an extension of its production cuts. WTI is about to end a 4-week winning streak, comfortably above $70 but still shy of $80 per barrel.

Biggest Market Movers

The pound fell more than 1% on its way under $1.30, and UK stocks gained after better-than-expected inflation figures, with footsie soaring past a 3% gain.

The Nasdaq managed a new record high after better-than-expected earnings at the start of the season helped boost risk appetite. It then fell following disappointing earnings, passing the lead to the Dow Jones. The defensive stocks index rose more than 2% to an April high.

The Week Ahead

What's Next for MonPol from Biggest Banks

Central banks are likely to be the dominant factor for the week, with the two largest economies in the world having rate decisions. There is a solid consensus that the Fed will hike by 25bps, focusing on what's signalled for the September meeting. The Fed has indicated that there will be two more hikes this year, but it doesn't necessarily mean they will happen consecutively. The market disagrees, saying no more hikes after July. The tone of the presser and statement could determine whether the market sticks to its guns or starts to believe the Fed. 

USD/JPY's rejection at 138.00 may see prices advance towards 142.00 again unless data disappoint and bears attempt to revisit 135.00 territories.

The ECB is also expected to hike, with considerably more analysts expecting a signal implying that September would also have a hike. The recently revised final GDP numbers helping the shared economy technically avoid falling officially into a recession might allow for a more aggressive stance from the ECB, though the disagreement between hawks and doves is expected to intensify after the hike. The BOJ is also expected to keep its policy unchanged when it meets this week.

EUR/USD failed to get through $1.12, but the chances of moving past it remain high as long as bulls hold the $1.10 line. Next resistance is expected at $1.13.

PMIs and GDPs

Market sentiment for the start of the week could hinge on flash PMI readings expected to show European and Australian manufacturing is falling further into contraction this month. The UK and the US are also expected to slide, but not as much. The cable could continue to slide towards $1.27 data-dependent, but chances of a $1.30 jump remain intact. 

Coming fast on the heels of the FOMC rate decision, the US will first look at its Q2 GDP, which is forecast to slow on the annual rate to 1.9% from 2.0% prior. Canada will report its monthly GDP figure a day later, with a pickup expected at 0.4% from 0.0% prior. USD/CAD is still seen trading in a range with support and resistance at $1.31 and $1.33, closing in on the lower end.

Price Data In the Mix

Following the ECB rate decision, Germany and France will give the first look at their July inflation figures. The two largest economies generally set the tone for the Eurozone, which will report later. Headline annual inflation in France and Germany is expected to come down thanks to base effects, as the monthly rates are expected to be unchanged from the prior month. 

Then, the US will report its monthly PCE price index -watched closely by the Fed for monetary policy decisions- with annual growth in prices expected to moderate a bit despite monthly growth remaining steady at 0.3%. US personal spending is expected to be at -0.5% compared to 0.1% prior. Germany's 40 index is not far from new records while trading above 15800.

Other Events and Earnings

Monday has Australia's trade balance. For Tuesday, the German Ifo business climate is expected. Wednesday sees Australian inflation and BOC minutes. German GfK consumer confidence and US Durable Goods are expected on Thursday. Friday includes French GDP and Michigan Consumer Sentiment. 

Earnings season is nearing its peak this week, with a plethora of names, including Microsoft, Unilever, Alphabet, Visa, Danaher Lloyds, Coca-Cola, Thermo Fisher, Meta, Reckitt Benckiser, Amazon, AbbVie, McDonald's, Barclays, Exxon Mobil, Procter & Gamble, Chevron, AstraZeneca, BT, Centrica, Vodafone and Shell.