Next week, ECB Executive Board members and 16 governors of the eurozone central banks will come together after a break in August to decide whether to raise interest rates further. While most corporations have announced their earnings results for quarters ending in June and July, we may see the first corporate reports for quarters ending in August, such as Oracle and Adobe.
Tuesday, 12.09. 09:00 GMT, Eurozone ZEW Economic Sentiment (September)
The ZEW Indicator of Economic Sentiment is a leading indicator providing insight into the relative economic outlook for the eurozone in the following six-month period. It is created based on interviewing 350 institutional investors and other experts from banks and other sectors about their expectations concerning the interest rates, inflation rates, exchange rates, stock markets, and other measures, such as the development of the business cycle of key world economies in order to develop a sentiment for the eurozone's economy for the next six months.
The ZEW Indicator of Economic Sentiment is calculated by comparing the number of experts with positive versus negative sentiment. For example, if 30% hold positive sentiment, 20% have neutral sentiment, and 50% hold negative sentiment, the ZEW indicator would result in -20%.
Last month, the ZEW Indicator of Economic Sentiment for the eurozone displayed a notable improvement, reaching a value of -5.5, surpassing the expected value of -12. This marked the highest level observed in the past four months, indicating a positive shift from the previous month's reading of -12.2. Among the analysts surveyed during this period, 57.5% anticipated that economic activity would remain stable, while 18.5% expressed concerns about a potential deterioration, and 24% were optimistic about an improvement in economic conditions.
Additionally, during the same period, the indicator assessing the current economic situation increased by 2.4 points, reaching a value of -42. Simultaneously, expectations regarding inflation also saw a 2.4-point uptick, bringing them to a level of -76.7.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bullish effect on the EUR, while a lower-than-expected reading could be bearish for the EUR.
Impact: EUR
Wednesday 13.09. 12:30 GMT, US Consumer Price Index (CPI) YoY (August)
The CPI index measures changes in the prices of consumer goods and services. It covers different types of products, such as food, fuel, transportation services, cosmetics, household goods, clothing, and many others. The purpose of the CPI index is to measure the increase or decrease in the cost of living for consumers. As the CPI index rises, consumers' purchasing costs increase, affecting their money's purchasing power. The CPI index is used to monitor inflation or the overall rise in prices in the economy. It allows us to assess whether prices are rising too fast or too slowly and to determine what economic policy measures should be taken to offset the adverse effects of inflation.
In July, the annual inflation rate in the United States accelerated to 3.2%, up from the 3% recorded in June. However, this figure fell slightly short of the anticipated 3.3%, marking a pause in the 12 consecutive months of declining inflation rates. This reversal could be attributed to base effects, as a year prior, inflation had started to recede from its peak of 9.1%.
During July 2023, energy costs experienced a decrease of 12.5%, although this decline was less pronounced compared to the 16.7% drop seen in June. The moderation in energy cost declines was notable in categories such as fuel oil (-26.5% vs -36.6%), gasoline (-19.9% vs -26.5%), and utility gas services (-13.7% vs -18.6%). Conversely, certain expenses saw an increase, such as the cost of apparel (3.2% vs 3.1%) and transportation services (9% vs 8.2%). However, electricity prices noted a more modest rise of 3%, down from the 5.4% increase seen in June.
Inflation also decelerated for food (4.9% vs 5.7%), shelter (7.7% vs 7.8%), and new vehicles (3.5% vs 4.1%). Additionally, the cost of medical services saw a 1.5% decrease (vs -0.8%), and prices of used cars and trucks declined by 5.6% (vs -5.2%).
Meanwhile, core inflation, which excludes food and energy, eased slightly to 4.7% in July from the 4.8% recorded in June, falling below the expected 4.8%.
Source: Tradingeconomics.com
On the one hand, if the reading is higher than expected, inflation is higher, which may favour a fall in the USD. Meanwhile, it is also a stimulus for the Fed to raise interest rates and reduce the money supply, causing an increase in the USD. On the other hand, if the reading is lower than expected, it may give the Fed an argument to stop its policy of raising interest rates.
Impact: USD, S&P500 and other indices
Thursday, 14.09. 12:15 GMT, Eurozone Interest Rate Decision
European Central Bank (ECB) Executive Board members and 16 governors of the eurozone central banks vote on whether to raise, decrease, or leave interest rates unchanged. These decisions affect the currency's value, and interest rate policy is among the key instruments to regulate inflation. Investors closely follow central banks' decisions and changes in the level of interest rates, as this information can be crucial to their trading strategies. The value of a currency tends to rise when interest rates are high, as they attract investors seeking higher returns on their deposits. Conversely, when interest rates are low, the currency's value tends to fall as investors look for other places to invest their money.
According to the latest European Central Bank (ECB) meeting minutes, policymakers kept open the possibility of raising interest rates in September when they implemented an interest rate hike in July. However, some members of the ECB seemed to suggest that such a move might no longer be necessary once new economic projections are made available.
Over more than a year, the ECB has raised rates incrementally from -0.5% to 4.25% to counteract a surge in inflation. Nevertheless, there is a growing consensus in favour of pausing this tightening cycle, driven by the belief that the cumulative impact of these rate hikes may be sufficient to dampen underlying inflationary pressures.
According to long-term projections, interest rates should reach 4.25% by the end of this quarter and diminish to 3.75% in 2024. Based on these projections, it may be plausible that the ECB votes on leaving the interest rates unchained in the September meeting, as this projection has already been met.
Source: Tradingeconomics.com
A higher-than-expected rate may be positive for the EUR and negative for the stock market, while a lower-than-expected rate may be negative for the EUR and positive for the stock market.
Impact: EUR, DAX, STOXX Europe indices
Stocks to watch
Dollarama (DOL) announcing its earnings results for the quarter ending on 07/2023. Forecasted EPS: 0.7705. Positive earnings surprise in 7 out of the last 10 reports. Time: Wednesday, September 13, before the market opens.
Oracle (ORCL) announcing its earnings results for the quarter ending on 08/2023. Forecasted EPS: 1.15. Positive earnings surprise in 8 out of the last 10 reports. Time: Thursday, September 14.
Adobe (ADBE) announcing its earnings results for the quarter ending on 08/2023. Forecasted EPS: 3.97. Positive earnings surprise in 9 out of the last 10 reports. Time: Thursday, September 14, after the market closes.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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