Key events to watch in the week ahead: 24-28 July 2023

This week’s overview

This week has witnessed further pull-ahead in value sectors, with the DJIA gaining for the ninth straight session and closing above 35,000 for the first time in 22 months. On the other hand, the Nasdaq carried some reservation following Netflix and Tesla’s earnings releases.

Given the stellar tech rally since the start of the year, expectations may be priced for perfection on all fronts in mega-cap tech results, and failure to justify their lofty valuation may trigger a bout of profit-taking as seen overnight.

Heading into the new week, here are six key events to watch:

US 2Q earnings season: Alphabet, Visa, Microsoft, Boeing, Meta Platforms

The US earnings season will shift into higher gear next week, with eyes on mega-cap tech earnings releases from Alphabet, Microsoft and Meta Platforms. Thus far, out of the 15% of S&P 500 companies which have released their earnings, 73% have beaten estimates, which is in line with the S&P 500’s 10-year average outperformance.

Given the rally in tech mega-caps since the start of the year, the upcoming earnings will be on watch to provide justification for the premium valuation commanded by the sector. Market participants will also be keeping an eye on any guidance from these tech companies to pull ahead in the race to offer generative AI tools to consumers.

27 July 2023 (Thursday, 2.00am SGT): US Federal Open Market Committee (FOMC) meeting

The CME FedWatch Tool indicates that a 25 basis-point (bp) rate hike by the Federal Reserve (Fed) has been fully priced at the upcoming meeting. However, rate expectations are priced for a prolonged rate pause after July, which still contrasts with the Fed policymakers’ views. Fed policymakers have previously guided for cumulative 50 bp worth of tightening by the end of this year.

Given the downside surprises in US inflation lately, market participants will be watching how the Fed may address that, although the Fed is likely to stick to its data-dependent stance and retain its firm tone that the US inflation fight is not over. Fresh updates on the Fed’s economic projections will only be presented in the September meeting, leaving interpretation of the Fed’s rate path to revolve around the Fed’s policy statement and Fed Chair Jerome Powell’s press conference.

27 July 2023 (Thursday, 8.15pm SGT): European Central Bank (ECB) policy meeting

At its meeting in June, the ECB raised the deposit rate facility by 25bps to 3.5%, as widely expected. The decision was accompanied by a hawkish tone as the ECB’s inflation projections for 2024 and 2025 were revised higher. ECB President Lagarde stated that a rate hike in July was very likely, and that the ECB was not considering a skip or a pause.

Despite signs of a further slowdown in June, including the confirmation that the Euro Zone entered a technical recession in Q1 of 2023, inflation remains the ECB’s main concern, and a 25bp rate hike to 3.75% next week is assumed to be a done deal.

The real interest will be on the communication for upcoming meetings and whether next week’s hike will be the last or if more are to follow. If next week's hike is flagged as the last, it will trigger a dovish reaction. However, it is more likely that the ECB will leave the door open for another 25bp rate hike at the September meeting, which currently has above 14bp priced in.

27 July 2023 (Thursday, 8.30pm SGT): Advance estimate for US Q2 GDP

The advance estimate for US Q2 GDP is expected to come in at 1.8% quarter-on-quarter, which is a tad softer than the 2% read in Q1, but nevertheless, suggesting that the US is not in a recession just yet.

Any stronger-than-expected read may likely provide more conviction for present ‘soft landing’ hopes and further push back against recession chatters. But given that the data is lagging, the heavier focus on forward-looking conditions could still leave more attention on the US earnings season and FOMC meeting.

28 July 2023 (Friday, 11.00am SGT): Bank of Japan (BoJ) policy meeting

The latest Japan’s inflation data for June has revealed a lower-than-expected headline print (3.3% versus 3.5% year-on-year), but the core aspect continue to show some persistence with a match of consensus at 4.2%. Along with a recent pull-ahead in Japan’s wage pressures, chatters of a tweak in policy settings from the Bank of Japan (BoJ) is likely to remain into next week’s meeting.

Despite some pushback from authorities lately for a July move, the consensus remains that a policy shift will be a matter of when and not if, with broad expectations that it could eventually take place by the October meeting.

28 July 2023 (Friday, 8.30pm SGT): US Personal Consumption Expenditures (PCE) price index

Last month the US PCE Price Index registered a 3.8% increase year-on-year (YoY), which is its lowest reading since April 2021. The core aspect, which is the Fed’s preferred measure of inflation, turned in at 4.6% YoY in May, easing from the 4.7% in April.

Into the June reading, further moderation in pricing pressures is expected to continue. The PCE Price Index is expected to fall to 3.1% from 3.8% prior, while the core PCE Price Index is expected to fall to 4.2% YoY from 4.6% prior. Nonetheless, core PCE at 4.2% is still twice the Fed’s inflation target of 2% and could still put the odds of more rate hike on the table in light of any persistence over the coming months.