Financial Markets Outlook

Posted by SM-INVEST -

Last Week’s Summary

U.S. stocks finished lower on Friday, closing the worst week on equity markets since the end of May. Investors’ enthusiasm cooled down during the second half of the week with the Fed signs being interpreted by the market to only modest rate cuts of 25 points to come, and not 50 points as expected.  The Dow Jones Industrial Average closed with a 0.7% decline, the S&P 500 finished with a weekly slide of 1.2%, while the Nasdaq finished the week with a 1.2% weekly drop.

The European stock markets came under pressure throughout the week as fresh U.S.- China trade tensions escalated. The talks between the two countries stopped after U.S. President Donald Trump threatened to impose tariffs on a further $325 billion of Chinese imports. Italian equity markets were pressured given rising concerns on the Eurosceptic coalition government that could collapse and force snap elections.

The British pound fell to a two-year low during the week following rumours of a no-deal Brexit and the likelihood that Boris Johnson would be the next prime minister. It recouped some losses after the U.K. Parliament voted to block the next prime minister from suspending parliament and forcing through a no-deal Brexit.

The Week Ahead on Financial Markets

Slow economic and earnings growth will be a theme in markets in the week ahead, as investors are waiting for a Fed interest rate cut next week. Economists believe the Fed will cut interest rates even though recent data has improved. Powell has stressed that the Fed is focused on the global economic slowdown, trade wars and low inflation, and it will do what it takes to keep the economy expanding.

More than a quarter of the S&P 500 companies report earnings this week, the second big week of the second-quarter reporting season. There would be trading opportunities as more than 130 companies are expected to release their reports, including giants like Amazon and Alphabet, and blue-chip companies such as Boeing and McDonald’s. Except for the earnings releases, there are also some important economic data to be announced.

On Tuesday, Existing Home Sales data will be released in the U.S., which is a key indicator of overall economic strength. Better than expected data might have a positive effect on the equity indices and USD.

More Earning Releases

Wednesday will open with German manufacturing PMI data, and better than expected data could have a positive impact of German equity indices and on the EUR. Later on Wednesday, new home sales are public in the U.S. and investors should watch the volatility on markets during the announcement. Crude oil inventories are out as well, and larger than expected numbers could harm the oil prices.

Thursday is a busy day with economic data, which will open with German Ifo Index release. This data measures the business climate in Germany and measures expectations for the next six months. Better than expected data could impact the EUR and German equity indices. Later that day, ECB will release its interest rate decision. During the announcement, high volatility might occur and send the EUR into volatility.

On Friday, the U.S. second-quarter GDP is out. This data serves as the primary indicator of the economy’s health. Better results than the expectations could have a positive impact on the USD against other currencies.

Aside from the 130 earnings releases expected this week, lots of economic data are due this week will present investors a significant variety of trading opportunities.

Potential Trading Opportunities

Big earnings week is ahead of us, as the largest banks are starting to publish their quarterly earnings reports. On Tuesday, investors’ eyes will be waiting for Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo to report. This could give investors an indication of the financial strength of the investment banking sector. The earnings flood continues with Bank of America reporting on Wednesday and Morgan Stanley to release on Thursday. Furthermore, two of the U.S. major railroads companies are publishing their reports on Thursday (Union Pacific Corp) and on Friday (Kansas City Southern) which could attract more interest as investors are looking for signs of how deeply U.S. President Donald Trump’s multi-front trade war is affecting freight companies and the broader economy.

From Tuesday onward, major economic data is out, starting with Australia NAB business confidence for June. Currencies to consider during the announcement will include the AUD. Later that day, German ZEW Economic Sentiment is out and higher than expected reading may impact the EUR against other major currencies. In the U.S., retail sales data for June will be public. It is an important indicator of consumer spending and is a major indicator of the U.S. economy. Higher than expected figures are a positive indicator for USD against other currencies and for major U.S equity indices as well.

Mixed Data

Wednesday will begin with a release of June CPI data in the U.K. and European Union. Better than expected readings could be positive indicators for the GBP and the EUR. Later that day, crude oil inventories data will be out in the U.S. The week before this data had a significant effect on oil prices, because of the substantial decline in the inventories.

On Thursday, Employment Change in Australia data will go public. Better than expected could have a positive impact on AUD against other major currencies.

U.K. Retail Sales will be public later that day. Better than expected data could have a positive effect on the GBP.

First companies will start releasing their quarterly reports this week, and this could add a lot of new interest and trading opportunities for investors.

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