Earnings season and monetary policy

A busy week could lead to a return of volatility on the markets, with the results season, monetary policy decisions and China in particular.

Three central banks are expected this week, with the Fed on Wednesday, the ECB on Thursday and Japan's BoJ on Friday. While the first two are expected to raise their respective rates by 25 bps, the Bank of Japan is likely to try to gain time and maintain its ultra-accommodating policy, which it has held for years, while inflation is now over 3%.

The Fed is expected to maintain its hawkish tone, although the markets expect Wednesday's hike to be the last in this cycle of monetary policy tightening. Falling inflation and slowing economic data could force Jerome Powell to leave monetary policy unchanged.

The labour market is still very solid, but the next decision will not be taken until September, and employment could show some weakness between now and then, allowing the Fed to take a real break from the autumn.

As for the ECB, although inflation remains high, economic data shows a risk of a more significant slowdown over the next few quarters and the markets are beginning to think that Christine Lagarde may be forced to stop tightening monetary policy quickly.

Finally, the BoJ does not seem to be worried about inflation rising above its target and is likely to keep its rate at the floor, on the pretext that inflation should return to close to 2% soon. In other words, that the rise in inflation is only transitory, like the ECB and the Fed in 2021.

The other major event of the week is results season. Investors are waiting to justify the incredible rebound seen on the financial markets with company results and outlooks. So far, the markets have risen against a backdrop of falling corporate earnings, thanks in particular to hopes linked to AI and the prospect of central bank rates falling in the near future.

On the other hand, the results of the first technology companies to publish their results, with Netflix and Tesla last Wednesday, showed that the penalty could be brutal if the companies disappoint.

On Monday, we will be keeping an eye on Domino's Pizza, Philips, Ryanair and a number of US regional banks. On Tuesday, Verizon, General Motor, 3M, General Electric, Spotify before the US markets opened, but especially Microsoft, and Alphabet, or Snap Inc and Visa, after the close.

On Wednesday, AT&T, Boeing and Coca-Cola before the opening, then Meta, Chipotle and Ebay after the close. On Thursday, investors will be looking at McDonald's, Mastercard and Valero at the start of the day, before Ford, Intel and TMobile at the end. On Friday, ExxonMobil, Procter & Gamble and AstraZeneca will be closely watched.

In terms of statistics, on Monday, the manufacturing and services PMIs will be analysed in Europe in the morning and in the United States in the afternoon, and they could confirm the continuing contraction in manufacturing activity and the slowdown in services activity worldwide.

On Tuesday, we will find out about the IFO business climate indices in Germany, and US consumer confidence, which could rebound again after rising to its highest level since January 2022 in June. Wednesday will be quieter in terms of statistics, with only a few data on the US housing market, pending the Fed's decision at the end of the day.

On Thursday, on the other hand, a number of statistics are expected, including industrial company profits in China and consumer confidence in Germany, but in the second half of the day investors will be focusing on durable goods orders, PCE prices, GDP and weekly jobless claims in the United States.

Friday will also be a busy day, with inflation figures for the eurozone and some of its member countries, including Germany, ahead of PCE prices, as well as some data on consumer confidence in the United States.

In addition to these major events, the markets will be paying close attention to the Politburo meeting in China, which is due to take place at the end of the week. Investors are awaiting measures from the party to support the economy, as the post-covid rebound has been undermined since the start of the year. Measures were announced on Monday, but given investors' high expectations, they could be disappointed.