Top 5 things to watch in the markets next week Via

© Reuters — The week will be dominated by central bank meetings, with the Federal Reserve and the European Central Bank both poised to deliver rate hikes, while the Bank of Japan stands by. A rally in the US equities market is facing an inflection point and oil looks set for further gains amid concerns over the supply outlook.

  1. Fed decision day

With the Fed all but certain again at the end of its latest policy setting on Wednesday, investors are turning their attention to whether this is likely to be the final hike of its tightening cycle.

The Fed halted rate hikes in June after raising its policy rate by 500 basis points starting in March 2022, as it began its fastest cycle of monetary policy tightening in more than 40 years in a bid to combat worsening inflation.

Investors have mixed views on the central bank’s long-term monetary policy outlook.

Analysts at Goldman Sachs said on Friday that while they expect this hike to be the longest tightening cycle they believe the Fed will ultimately choose to “remain more hawkish than market pricing.”

“The main question is how strong [Fed] chair [Jerome] Powell will nod to the ‘cautious pace’ of tightening he advocated in June, which we and others have done to signal the approach at every other meeting.”

  1. ECB meeting

The ECB is widely expected to deliver another 25-basis point rate hike this coming Thursday, so all eyes will be on the central bank’s plans for September, with markets divided over whether there will be another hike or a pause.

in the eurozone has cooled since reaching a peak of 10.6% in December but still remains above the ECB’s 2% target. The ECB said inflation was “expected to remain very high for a very long time” and that it still had “more ground to cover”.

After eight consecutive rate hikes since July 2022 for a total of 400 basis points, investors and analysts are now hotly debating how many more hikes are needed and how long rates need to stay high to bring inflation back on target.

ECB President Christine Lagarde is likely to reiterate that future decisions will be based on incoming economic data.

  1. BOJ decision

The BoJ’s monetary policy on Friday is expected amid continued speculation that policymakers may adjust their ultra-loose monetary stance amid heightened price pressures.

Data on Friday showed that Japan’s core inflation remained above the central bank’s 2% target in June for the 15th straight month but an index that strips out the impact of energy costs slowed, indicating that price pressures may be rising.

While the data increases the chance the BoJ will upgrade its inflation forecast this year, it may take pressure from the central bank to soon begin phasing out its massive monetary stimulus, analysts said.

“All expectations are for them to keep control of the yield curve and no changes in rates, but maybe a small upgrade in their inflation outlook,” Edward Moya, senior market analyst at OANDA in New York told Reuters.

However, “the chances that we get a surprise should remain on the table,” Moya added. “The BOJ has the potential to be a major market-moving event because time is running out on the BOJ to really set up a policy change.”

  1. The stock market is facing a test

A rally in US equities markets faces a major test this week with the Fed expected to deliver what could be the final rate hike of its most aggressive monetary policy tightening cycle in decades.

At the start of the year, many investors expected higher interest rates to bring a recession that would further hurt stocks after the sharp decline of 2022. Instead, the US economy is proving resilient even as the Fed has made progress in its inflation fight and investors are embracing the idea of ​​a ‘soft landing’.

The belief that the Fed is nearing the end of its tightening cycle has boosted stocks in recent weeks.

Aside from the Fed, investors will also focus on earnings from some of the big tech and growth stocks that have led markets higher this year. Among them are Microsoft (NASDAQ: ) and Alphabet (NASDAQ: ), which report Tuesday after the market close.

Both tech behemoths are rising rapidly year-to-date, driven by optimism that demand for artificial intelligence will fuel future growth.

  1. Oil price

Oil prices rose nearly 2% on Friday to post a fourth straight weekly gain, boosted by growing evidence of supply shortages in coming months and rising tensions between Russia and Ukraine that could further hit supplies.

Futures rose $1.43, or 1.8%, to settle at $81.07 a barrel, for a weekly gain of about 1.2%. ended $1.42, or 1.9%, higher at $77.07 a barrel, its highest since April 25. WTI gained nearly 2% on the week.

“The oil market is starting to slowly price in a looming supply crunch,” Price Futures Group analyst Phil Flynn told Reuters.

“Global supplies are starting to tighten and that could accelerate significantly in the coming weeks. The increased risk of war could also affect prices,” Flynn said.

–Reuters contributed to this report

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