In the first half of last week, markets soared to new record highs, but by mid-week, the rally fizzled out. The week ended with one of the largest stock market declines this year.
Markets entered the historically weak period of July and August with optimism. However, sentiment in the technology sector began to deteriorate at the beginning of the month. Recent economic data and Jerome Powell's statements convinced investors that the Federal Reserve would start cutting rates in September. This forecast accelerated attempts to rotate out of technology sector stocks, which many consider overvalued, into more cyclically-oriented sectors expected to benefit most from Fed rate cuts.
This week, we're anticipating five key releases, including the Bank of Canada's interest rate decision and U.S. GDP data. Let's delve into the forecasts and potential implications.
🇺🇸 Existing Home Sales — July 23, at 17:00 GMT+3
The release of Existing Home Sales data will kick off the business week, providing crucial insights into the U.S. housing market. This report, which measures the change in the number of existing residential buildings sold during the previous month, is a key indicator of housing market health and consumer spending.
Economists are forecasting a figure of 4.07 million, slightly down from the previous month's 4.11 million. This anticipated decline could signal a continued cooling in the housing market, potentially due to higher mortgage rates and economic uncertainties. The data will be closely watched by investors as it can impact various sectors of the economy and financial markets. A lower-than-expected reading could pressure homebuilder stocks and possibly the broader U.S. stock indices (S&P 500, Dow Jones, Nasdaq). It might also influence the US Dollar, as a weakening housing market could reinforce expectations of future Fed rate cuts.
🇪🇺 S&P Global Composite PMI — July 24, at 11:00 GMT+3
The upcoming release of the S&P Global Composite PMI for Europe is a crucial economic indicator to watch. With expectations set at 49.8, down from the previous 50.9, this data could signal a contraction in both manufacturing and services sectors across the Eurozone. The Composite PMI, combining insights from both sectors, provides a comprehensive view of business conditions and is often seen as a leading indicator of economic health.
This release could significantly impact European assets, particularly the DAX index and the EUR/USD pair. A reading below 50, indicating contraction, might put pressure on the DAX and potentially weaken the euro. However, with EUR/USD currently holding positive ground near 1.0900 amid a weaker US Dollar, the impact might be mitigated.
🇨🇦 BoC Interest Rate Decision — July 24, at 16:45 GMT+3
The upcoming Bank of Canada (BoC) Interest Rate Decision is a pivotal event for the Canadian economy and financial markets. This decision follows the central bank's unexpected rate cut on June 5, when it reduced the overnight lending rate from 5% to 4.75% - the first cut since the hiking cycle began in March 2022. The BoC justified this move by citing cooling inflation that was moving closer to its 2% target.
TD Economist Andrew Hencic suggests that another rate cut this month is becoming increasingly likely, with more cuts expected later in the year. This outlook could have substantial implications for the Canadian Dollar and Canadian stock markets. If the BoC does cut rates again, we might see some weakening of the CAD against major currencies, particularly the US Dollar. However, Canadian stocks, especially in rate-sensitive sectors like real estate and utilities, could potentially benefit from lower borrowing costs.
🇺🇸 GDP q/q — July 25, at 15:30 GMT+3
The upcoming release of the U.S. GDP q/q report is a critical economic event that will offer crucial insights into the health of the world's largest economy. Economists are projecting an acceleration in growth to 2% for the second quarter, up from Q1's 1.4% annualized rate. This anticipated increase is largely attributed to estimated growth in personal spending, which has been bolstered by cooling inflation in recent months.
This GDP report could have significant implications for various U.S. assets. The US Dollar may strengthen if the actual figure meets or exceeds expectations, potentially reversing its recent weakness. For equity markets, which ended last week on a downward trend, the impact could be mixed.
A stronger-than-forecast GDP reading might boost confidence in the economy, potentially supporting the Nasdaq, S&P 500, and Dow Jones. However, it could also lead to delayed expectations for Fed rate cuts, which might temper stock market enthusiasm. Investors should watch this release closely, as it has the potential to shift market sentiment and influence Fed policy expectations in the near term.
🇺🇸 PCE Price Index m/m — July 26, at 15:30 GMT+3
The upcoming release of the PCE Price Index m/m is a crucial economic indicator that will be closely watched by investors and policymakers alike. This report measures the average monthly consumer spending, excluding volatile items like food and energy, and is the Federal Reserve's preferred gauge of inflation.
The Core PCE Price Index has shown a slowing trend in recent months, with May's data indicating a continued disinflation on an annualized basis. Markets are anticipating that this trend has persisted, which could bolster expectations for a potential rate cut by the Fed in September.
That's it for this week! 👋
