From negotiations on duties, to talks between the United States and Russia on the war in Ukraine, to the key data on US inflation. These are the three hot themes that condition the sentiment of the analyzes this week.
What will Federal Reserve do?
The eyes of the insiders today are focused on the monthly appointment with the reading of data on consumer prices. An important reading, because inflation continues to be one of the greatest concerns for Federal Reserve and, to date, the greatest obstacle to the long -awaited cuts at interest rates.
With the season of profits almost over, investors are changing prospect about the economic framework, looking for clues about the possibility that Jerome Powell’s Fed will be able to resume cuts at the cost of money, in September.
The data, coming out today, should show that US consumers have recorded a slight increase in inflation, since retailers gradually increased prices on a variety of articles subject to higher import duties.
The Core consumer price index, considered a measure of fundamental inflation because it excludes volatile costs of food and energy, is expected to be 0.3%uphill, in July, according to the median projection of a Bloomberg survey among the economists.
Expert predictions
“The market reaction to any surprises in the data could be exaggerated, especially if a figure of the IPC significantly higher than expected induces operators to believe that the Fed may not cut the rates in the next meeting,” says Chris Lankin of Etrade by Morgan Stanley.
“There is no doubt that the IPC will not be positive,” raises Andrew Brenner of Natalliance Securities. “The most important question is ‘it is important?’
According to the JpMorgan Chase & Co. Team Market Intelligence, led by Andrew Tyler, there is a 70% probability of further earnings for the S&P 500 after today’s report on inflation. They provide that the S&P 500 will increase up to 2% if the data is in line or lower the estimates. A positive ratio could trigger drops of almost 3%.
In the meantime, Citigroup strategists have raised their end -of -year goal for the S&P 500 from 6,300 to 6,600 points. The companies recorded “an excellent performance”, while maintaining substantially faithful to their projections for the second half of the year, says the team led by Scott Chronert.
Stable inflation in Eurozone: the ECB adopts an awaited approach
On the other side of the Atlantic, meanwhile, the ECB adopts an expectant approach. In July, the inflation in the euro area remained stable at 2% on an annual basis, slightly higher than the expectations of the market, but in line with the aim of the Eurotower, which after the decision to leave the rates unchanged at 2.15%, has substantially interrupted – at least for now – the monetary training cycle started in the past months. The policymakers have adopted an attempt approach, while the markets attribute a low probability to a further cut of the rates in September, explains Richard Flax, Chief Investment Officer of Moneyfarm. The prospects on inflation and the evolution of the global context, underlines the expert, will be central elements for the next decisions of the Eurotower.
Boe surprise hawk for inflation data
Falco tones, however, from the Bank of England that last week decided to cut the cost of money of 25 basis points, bringing the 4% interest rates from 4.25% previous. A decision that responds to the need to solicit economic growth and employment, in spite of an inflation that is still too high.
A result surprisingly “Hawkish” by the Monsor Policy Committee, with the need for a vote in two phases, to approve the cut of 25 basic points, widely expected, comments Jamie Niven, Senior Fixed Income Fund Manager, Candiam.
The maintenance of a “gradual and cautious approach” is an important element, explains the analyst, as it suggests that most members do not plan to accelerate quarterly cuts at this stage. In addition, this decision indicates that for other cuts a further disinflation will be necessary, which raises the bar for a more aggressive era. In the end, disinflation will come with the transmission of the effects of a weakening of the labor market and a slowdown in the US (and therefore global) economy, leading the bank of England to make more consistent cuts than currently provided by the market.
