The biggest highlight of the past week was undoubtedly the US inflation data. The overall cooling of CPI in June strengthened the market's confidence in the Fed's recent rate cuts, but Friday's PPI exceeded expectations across the board, which made investors feel gloomy. These mixed data highlight the complexity of the inflation problem. Nevertheless, since the key categories in the PPI report that affect the Fed's preferred inflation indicator, core PCE, are still relatively mild, and PPI data tend to be volatile, market bets on the Fed's September rate cut remain high.

As the possibility of the Federal Reserve cutting interest rates this year increases, the 10-year Treasury yield fell below 4.2% for the first time since late March this week; the U.S. dollar index plunged on Thursday after the release of CPI data, and has fallen 0.75% this week; gold has risen for three consecutive weeks, maintaining above the $2,400 mark, and is still at its highest level since May 22, while silver recorded a weekly decline; U.S. stocks regained their strength on Friday, with the S&P 500 and Nasdaq hitting new all-time highs during intraday trading, but gave up most of the gains at the close, and bank stocks were sluggish after the U.S. stock earnings season; crude oil stopped its four-day winning streak on the weekly line as the resumption of ceasefire negotiations between Israel and Kazakhstan offset the boost to oil prices from fuel demand.

The coming week will be a busy one, with Fed officials out in full force, key data such as "horror data" that may affect the prospects of rate cuts, and second-quarter earnings reports for U.S. stocks to be released one after another. Elsewhere, the European Central Bank will announce its interest rate decision, and the UK, Japan and Canada will all release inflation data.

The following are the key points that the market will focus on in the new week (all in Beijing time):

Central bank dynamics: Fed officials will go all out, and the ECB is expected to pause interest rate cuts

Fed:

At 0:00 on Tuesday, Federal Reserve Chairman Powell had a conversation with David Rubenstein, co-executive chairman of the Carlyle Group;

At 4:30 on Tuesday, 2024 FOMC voting member and San Francisco Fed President Mary Daly will attend a meeting titled "Bulls, Bears, and Bankers";

At 2:45 on Wednesday, Federal Reserve Board Governor Kugler will deliver a speech;

At 21:00 on Wednesday, Barkin, 2024 FOMC voting member and president of the Richmond Fed, will deliver a speech;

At 21:35 on Wednesday, Federal Reserve Board Governor Waller will give a speech on the economic outlook;

At 2:00 on Thursday, the Federal Reserve will release the Beige Book on economic conditions;

At 6:05 on Friday, 2024 FOMC voting member and San Francisco Fed President Mary Daly will participate in a fireside chat;

At 7:30 on Friday, Federal Reserve Board Governor Bowman will deliver a speech;

At 22:40 on Friday, FOMC permanent voting member and New York Fed President Williams will deliver a speech on monetary policy;

The case for the Federal Reserve to cut interest rates is strengthening as more signs of cooling inflation emerge. According to the CME FedWatch tool, the market sees a more than 90% chance of a rate cut in September. Traders are starting to price in the possibility of three rate cuts from the Federal Reserve this year. "This week's PPI and CPI reports together have fueled hopes that the Federal Reserve can confidently lower interest rates in the coming months," said Kurt Rankin, senior economist at PNC Financial Services. Next week, investors will be watching speeches by Federal Reserve policymakers, led by Powell, to see if the PPI and CPI data have an impact on the Fed's outlook for rate cuts.

Indeed, Chicago Fed President Goolsbee and San Francisco Fed President Mary Daly both said the latest inflation data supported a rate cut. Other top Fed officials, including Powell, said they wanted more evidence to further confirm that inflation had slowed enough to justify a rate cut. Early forecasts for the June PCE report, based on details in the PPI and CPI data, suggest inflation will slow further.

But Stephen Stanley, chief economist at Santander Capital Markets, suspects that the recent CPI report exaggerates the pace of slowing inflation. Some goods and services have seen unusual declines in prices - something he believes will not last, and warns that the Fed and Wall Street are likely to see another unwelcome surprise in the coming months.

JPMorgan Chase CEO Jamie Dimon also issued another inflation warning on Friday. In a statement released along with the bank's second-quarter earnings report, he said, "While some progress has been made in reducing inflation, there are still multiple inflationary forces facing us: large fiscal deficits, infrastructure needs, trade restructuring, and the remilitarization of the world. Therefore, inflation and interest rates may still be higher than market expectations."

At the same time, there are frequent signs of cracks in the U.S. economy, and the Beige Book of economic conditions released by the Federal Reserve next Thursday will help investors assess the current economic situation in the United States. Robert Minter, director of ETF strategy at ABRDN, said that with the slowdown in the labor market, the Federal Reserve needs to act immediately to avoid falling further behind. "If you look at how high consumer debt is, it doesn't take much pressure in the labor market to cause real problems for the economy. While I don't think the economy will enter a recession, it all depends on the Federal Reserve," he said.

Other central banks:

At 20:15 on Thursday, the European Central Bank announced its interest rate decision;

At 20:45 on Thursday, European Central Bank President Lagarde held a monetary policy press conference;

The ECB initiated its first interest rate cut of this cycle last month but is expected to keep its policy unchanged at a two-day policy meeting ending this week.

The ECB's June rate decision proved somewhat controversial, with policymakers wildly hinting at a rate cut ahead of the meeting, only to be embarrassed by rising inflation and wage growth data afterwards. "We expect the ECB to keep rates unchanged at its July meeting," Nomura economists said in a note, adding that recent comments from ECB policymakers "underline the need for more time and data before another rate cut."

The market's focus will be on any comments on the outlook for interest rates beyond July, especially expectations on the timing and pace of future rate cuts. The market generally expects the ECB to wait until September before resuming rate cuts, with a 45 basis point cut this year. If ECB President Lagarde does not provide any clear forward guidance, the euro may extend its recent gains. But if she commits to a rate cut in September, this will have a negative impact on the euro.

Important data: "Terrible data" may further support the prospect of interest rate cuts, will gold take off again?

At 10:00 on Monday, China's second quarter GDP annual rate

At 17:00 on Tuesday, the Eurozone ZEW Economic Sentiment Index for July

Tuesday 20:30, Canada June CPI monthly rate

Tuesday 20:30, US June retail sales monthly rate

Tuesday 22:00, US July NAHB Housing Market Index

At 14:00 on Wednesday, the UK June CPI monthly rate

At 17:00 on Wednesday, the final annual and monthly CPI values ​​for June in the Eurozone will be released.

At 20:30 on Wednesday, the total number of new housing starts in the United States in June and the total number of building permits in the United States in June

At 22:30 on Wednesday, the EIA crude oil inventory and strategic petroleum reserve inventory in the United States for the week ending July 12

Thursday 9:30, Australia's June seasonally adjusted unemployment rate

Thursday 14:00, UK May three-month ILO unemployment rate

At 20:30 on Thursday, the number of initial jobless claims in the United States for the week ending July 13

At 22:00 on Thursday, the U.S. Conference Board Leading Index monthly rate for June

At 7:30 on Friday, Japan's June core CPI annual rate

At 14:00 on Friday, the UK's June seasonally adjusted retail sales monthly rate

Friday 20:30, Canada May retail sales monthly rate

At 22:00 on Friday, the final value of the University of Michigan Consumer Confidence Index in June and the expected one-year inflation rate in June will be released.

Although Fed officials have declared that they are in no hurry to start cutting interest rates, investors are increasingly confident that they will take action in September as inflation slows again after stagnating earlier this year, and Fed Chairman Powell pointed to a recent cooling in the labor market. U.S. consumer spending also appears to be slowing, and retail sales data next Tuesday, known as the "horror data," may provide more evidence. The situation in the U.S. housing market will also be under attention, including housing starts and building permit data released on Wednesday.

U.S. retail sales are expected to be flat in June after rising just 0.1% month-on-month in May. Further weakness in consumption will strengthen expectations of a rate cut by the Federal Reserve, while any unexpected rebound could prompt the dollar to rebound. The dollar index is currently stuck at the support level of 104, and traders will be watching to see if it can hold this level.

The lower dollar has given precious metals a shot in the arm, even Friday's higher-than-expected PPI data failed to cool the gold market. Gold has held the key psychological level of $2,400 an ounce this week, which analysts believe is a strong indication that the consolidation phase of gold prices is coming to an end and it is possible to hit new all-time highs. Although there are some important economic reports to be released next week, some analysts do not expect the data to make a substantial change in market expectations, which will continue to support the new positive momentum of gold.

Carsten Fritsch, a commodities analyst at Commerzbank, said gold prices could return to their all-time highs in May in the coming days. Christopher Lewis, a market analyst at FX Empire, pointed out that if the $2,450 level can be broken, gold prices will be expected to reach the $2,500 level. In his view, short-term pullbacks will be seen as buying opportunities, and given the current geopolitical issues, gold can currently be seen as a one-way long asset. He expects around $2,280-2,300 to be a strong bottom support range, but a drop to this level is not within his baseline expectations.

Given that ECB policymakers stick to the data-dependent principle, eurozone data that traders should pay attention to next week include the July ZEW economic sentiment index on Tuesday and the final June CPI on Wednesday.

For the pound, it has rebounded sharply in July, helped by a weaker dollar and the Labour Party's move to end the turbulent 14-year Conservative government. In addition, the Bank of England's more hawkish interest rate policy outlook has also supported the pound. Although the overall inflation rate fell to the 2% target in June, the service sector inflation rate is still as high as 5.7%, which makes policymakers uneasy. Hugh Peel, the Bank of England's chief economist, just emphasized this week. In addition, as the UK's economic growth momentum has recovered, there is no strong urgency to cut interest rates in the near future.

With the probability of an August rate cut by the Bank of England now below 50%, policymakers may be undecided, so the latest news on UK inflation, employment and retail sales next week may have a decisive impact. Any further slowdown in core and service inflation and wage growth could set the stage for an August rate cut, which could lead to a lower pound. However, given the improving outlook for the UK economy and the difficulties faced by the euro and yen, even if further progress on the inflation front gives the Bank of England the green light to cut rates soon, it may not be too disastrous for the pound.

Other non-US currencies will also see some catalysts next week. Australian dollar traders will keep an eye on China's GDP data on Monday and domestic employment data on Thursday. Canada's unexpectedly higher inflation rate in May dampened the Bank of Canada's hopes of a back-to-back rate cuts in July, and unless the June CPI report released on Tuesday shows that price pressures have eased, the central bank is likely to remain on hold until at least September, supporting the Canadian dollar. In addition, with the Bank of Japan's meeting on July 31 approaching, its June CPI data will be the last clue as to whether it will raise interest rates this month. The Bank of Japan has hinted that the expectation of announcing a reduction in its bond size at its next meeting should not be seen as putting the decision to raise interest rates on hold. But investors are still not convinced that there is enough reason to raise interest rates further, so any upward surprise in June CPI could boost the yen.

Important event: Israel is “fighting and negotiating”, will the ceasefire negotiations fail to proceed?

Israel and Hamas resumed ceasefire talks this week, but the differences between the two sides seem difficult to bridge. Hamas accused Israel on Saturday of killing and injuring at least 100 Palestinians in its attack on Khan Yunis in Gaza that day, indicating that it did not want to reach a ceasefire agreement.

In addition, a senior Israeli official involved in the negotiations revealed on Friday local time that the new demands recently put forward by Israeli Prime Minister Netanyahu for the negotiations are preventing the conclusion of an agreement. The official said that one of Netanyahu's demands is to prevent Hamas militants from returning to the northern Gaza Strip. If this principle is adhered to, this round of negotiations may be delayed for a longer period of time, and it is very likely that an agreement on personnel exchange will not be reached in the end.

A Hamas official said on the same day that in the ongoing negotiations on the ceasefire and personnel exchange agreement, Hamas still insists on getting a written guarantee from the mediator that Israel will not resume its military operations in Gaza after Hamas releases the detained Israeli personnel in the first phase of the agreement. The official said that the main sticking point at present is that Hamas hopes that the agreement can achieve a permanent ceasefire in Gaza, while Israeli Prime Minister Netanyahu emphasized that one of the principles that the negotiation of the agreement adheres to is that "any agreement should allow Israel to continue its military operations in Gaza until all its goals are achieved."

Company earnings reports: U.S. stocks have started sector rotation, will earnings season help this trend?

The second-quarter earnings season for U.S. stocks kicked off at an odd time. The most notable drop was the sharp drop in large technology stocks after the release of weak inflation data on Thursday. The expected imminent U.S. interest rate cuts are giving investors a difficult choice: whether to hold on to large technology stocks that have been driving the U.S. stock market rally for more than a year, or to turn to less favored areas of the market that may benefit from loose monetary policy. This sector rotation seemed to continue on Friday. Compared with the S&P 500 and Nasdaq, the Dow Jones Industrial Average, which is more focused on the real economy, set an intraday record and returned to the 40,000-point mark for the first time since May.

Art Hogan, chief market strategist at B. Riley Financial, said the next catalyst for the market to seek direction could be corporate earnings. Many investors expect that given the high valuations of large technology companies and higher earnings expectations heading into the earnings season, their performance may not be satisfactory going forward. According to FactSet's consensus forecast, the combined earnings growth rate of S&P 500 companies in the second quarter will reach 9.2%.

Hogan still expects the S&P 500 could end the year higher than his initial forecast of 5,600 as he expects strong corporate earnings and lower interest rates. He said it's not inconceivable for the index to peak at 5,800 this year. But he also expects investors to cut exposure to large-cap stocks and add to other underperforming stocks in the market.

However, some are skeptical that investors will stay away from big tech stocks, as they are expected to be more resilient in an uncertain economic environment. Chuck Carlson, CEO of Horizon Investment Services, said big tech companies could become an attractive investment target if the U.S. economy starts to weaken more than expected after months of high interest rates.

Market Holiday Arrangement:

Japan - Tokyo Stock Exchange closed for Maritime Day.

Article forwarded from: Jinshi Data