In short, it’s central banks and big corporate profits week that both represent about 50 percent of Wall Street’s market capitalization.
The week will be dominated by the Federal Reserve meetings on Tuesday and Wednesday, and the European Central Bank on Thursday, in parallel with a crucial meeting of the Bank of Japan on Friday.
Federal Reserve: Decision Day
With the Federal Reserve raising interest rates again at the conclusion of its last policy-making meeting on Wednesday expected to be 25 basis points, investors are focusing their attention on whether this is likely to be the latest rally in the tightening cycle.
The Federal Reserve temporarily halted rate hikes in June after raising interest rates by 500 basis points since March 2022, when it began the fastest tightening cycle of monetary policy in more than 40 years in a bid to combat rising inflation.
There are differing positions and expectations of monetary policy directions going forward, even among Fed members. Some advocate two consecutive hikes starting this month to ensure the defeat of inflation, while others argue that this level should be stopped so that growth is not hurt further.
Goldman Sachs expects this to be the “last” rise in a long-term tightening cycle, but they believe the Fed will ultimately choose to “stay tighter than market prices.”
Federal Reserve Chairman Jerome Powell said last month after the meeting that the Fed still had more work to do, and he himself did not rule out successive rate hikes.
Meanwhile, big profits are expected for companies such as Airbus, AstraZeneca, M3, AT&T, Boeing, Chevron, General Electric, General Electric, Alphabet, Meta, Microsoft, Procter & Gamble, Hermes International, McDonald, and others.
European Central Bank
All expectations are that the ECB will make a 25 basis point increase at its next meeting, as all eyes are on beyond this meeting and on the central bank’s plans for September, with markets divided over whether there will be another hike or a pause.
Eurozone inflation has calmed since peaking at 10.6 percent in December but remains well above the European Central Bank’s 2 percent target. The ECB said inflation was “expected to remain very high for a long time” and still had “more ground to cover.”
After eight consecutive rate hikes since July 2022 totaling 400 basis points, investors and analysts are now fiercely debating how many additional increases are needed and how long prices must remain high to bring inflation back to target.
ECB President Christine Lagarde is likely to maintain that future decisions will be based on incoming economic data.
The day after the ECB meeting, inflation data will be released from some member states, including Germany, France and Spain. The week will start with purchasing managers’ indices from Germany, France and the Eurozone.
Bank of Japan
On Friday, markets will await the outcome of the Bank of Japan meeting, and the trends it holds that may differ from the bank’s accommodative policies, in light of the sharp decline in the value of the yen, and the enormous pressure it imposes.
Data on Friday showed Japan’s core inflation remained above the central bank’s target of 2 percent in June for the fifteenth consecutive month.
While the data increases the chance that the Bank of Japan will update its inflation forecast for this year, it may take the pressure off it to soon begin phasing out massive monetary stimulus, analysts say.
Speculation that the Bank of Japan may adjust its yield curve control program and abandon its efforts to keep bond yields close to zero sent Japan’s ten-year government bond yields soaring Friday to a four-and-a-half-month high.
The bank is expected to raise its consumer price inflation forecast for the current fiscal year to 2.3 percent at this week’s meeting, compared with 1.8 percent currently, according to a Bloomberg News poll of economists.
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