It promises to be a very hot week in the financial markets due to the number of important publications that will appear at the end of July. We are talking about both the publication of quarterly results of Wall Street companies, Fed decisions and macroeconomic data.
In the United States, as the focus of attention may be this week, the Fed is expected to decide on the next stage of monetary policy tightening. According to market estimates, there could be a second rate hike of 0.75 percentage points on July 27. This could mean that the federal funds rate would rise from 1.5-1.75 percent to 2.25-2.5 percent. According to futures contracts, a 75-basis point hike is currently priced with a 77.5 percent probability. Meanwhile, a 100-point hike is estimated at 22.5 percent. If there is an increase in the cost of borrowing, the U.S. will experience the highest interest rates since 2019. The market is already speculating that there could be a series of rate cuts next year due to the risk of recession, and estimates that interest rates could fall by a total of 0.75 percentage points in 2023. It is worth mentioning here that the US yield curve appears to have inverted the most since 2000, which is even more than before the financial crisis.
Clues about the health of the U.S. economy may come from Wall Street results this week. We are talking about the presentation of their balance sheets by companies such as: Apple, Microsoft, Alphabet, Amazon, Meta, Intel, Boeing, 3M, Ford, among others. In addition to the publications themselves, the key may be the conferences, where companies usually give their outlooks for the next quarters. And it is from these that it will be possible to deduce what kind of economic slowdown we are talking about. This week will also see US GDP data. The U.S. economy is expected to have grown by 0.4 percent in Q2 this year, following a 1.6 percent decline in Q1 2022.
In Europe, key economies such as Germany, France, Italy and Spain will publish macroeconomic data on inflation rates and economic growth. Eurozone GDP is expected to have grown by 0.1 percent in Q2 of this year, while inflation in July could reach 8.7 percent, breaking another record. This could mean that as the European Central Bank tightens monetary policy, the eurozone economy will begin to slip into stagflation. It seems that the situation may not be improved at the moment by data readings related to consumer sentiment. The one in Germany may reach historic lows, while sentiment among businesses has fallen to its lowest level in 2 years.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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