Financial Markets Outlook

Posted by SM-INVEST -
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Previous Trading Week

The last week trading was short due to the U.S. Independence Day. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Index all jumped to record highs. This is the aftermath of the G20 summit in Japan where there were no escalations between China and the U.S. Every major developed market saw gains in equities. The week closed on a weaker note after the publications of U.S. jobs report. Numbers came out strong creating a far higher than the expectations 224,000 new jobs in June. These numbers actually weaken the possibility of a rate cut by a U.S. Federal Reserve later in July.

In the S&P 500, the Energy sector was the only sector finishing the week on a negative note.  The communication services sector was the top-performing sector.

After an encouraging outcome at the G20 summit and the admittedly fragile ceasefire between the U.S. and China, European equity markets almost touched yearly highs. European automakers, and especially BMW, were positive on news that U.S. car sales rebounded in June.

The European STOXX 600 index finished a positive week with 1.4% gains. The index retreated on Friday from more than the 12-months highs it hit the day before. It was also fueled by hopes of more relaxed monetary policy from major central banks.

The Week Ahead on Financial Markets

An eventful trading week is ahead of us. All investors’ eyes are on the Federal Reserve Chair Jerome Powel’s testimony. He will answer questions on the economy and Fed’s policy. His statement comes after a strong June jobs report raised questions about whether the Fed will cut rates this month.

In the coming week, the market also has other places to look for clues on Fed policy, including in the Fed’s minutes from its last meeting on Wednesday, after which it suggested it could cut rates if it needs to. There is also important consumer price index inflation data on Thursday and producer level inflation data on Friday when PPI will be public.

The main economic events will be out on Wednesday when GDP data from the U.K. is public. This indicates the economic health in the United Kingdom. During the announcement time, increased volatility could hit the GBP. A higher than expected result should be a positive indicator for the pound sterling.

Later that day, there is an interest rate decision from the Bank of Canada. This could cause high volatility in CAD. Crude oil inventories data will be out as well later that day. Higher than expected reading could harm the crude oil prices. Later on Wednesday, the U.S. Federal Open Market Committee (FOMC) meeting is taking place. Currency traders have a chance to examine the meeting outcome for clues regarding the future interest rate decisions.

Closing the Trading Week

Thursday, U.S. Core Consumer Price Index (CPI) is out, and it’s a key way to measure changes in purchasing trends and inflation. Higher than expected data might have a positive effect on the USD against other major currencies.

On Friday, the markets will wait for U.S. Producer Price Index (PPI), which measures the change in the price of goods sold by manufacturers. Higher than expected data could have a positive effect on the USD.

Besides the Fed and the inflation report, investors will begin to think of the second-quarter earnings season in the week ahead. First big companies will start releasing their reports this week before quarterly earnings reports from major banks start coming up the week after.

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