Macro Matters – Weekly review, w/c July 24

Full Article:

Macro Matters – Weekly Review, w/c July 24

Macroeconomic / Geopolitical Developments

• Central bank spotlight: Fed, ECB, and BoJ announce policy updates. - Treasury yields stabilize after recent declines.

All Eyes Are on the G3 Central Banks

This week, the Federal Reserve, European Central Bank, and Bank of Japan are set to announce monetary policy decisions within 36 hours, creating significant volatility across asset classes. The Fed’s 25bps hike is almost certain, but the narrative surrounding future rate hikes will be key. Similarly, the ECB is expected to deliver a 25bps hike, though its tone could shift with recent inflation declines. Meanwhile, the BoJ is likely to maintain its ultra-loose monetary stance, despite mounting anticipation of policy normalization.

Yields Rebound After a Sharp Decline

US Treasury yields are consolidating after sharp declines following soft inflation data. Falling yield spreads, with the 2s/10s curve further inverted, provide USD support. However, any dovish surprise from the Fed could reverse this trend, weakening the USD and boosting equities.

United States

• A 25bps Fed hike is expected, but guidance will drive markets. - Major corporate earnings this week could impact equity sentiment.

The Fed Set to Resume Tightening

Markets are pricing in a 25bps hike this week, taking the Fed Funds rate to 5.25%–5.50%. The focus, however, will be on the Fed’s guidance. If the Fed emphasizes data dependence and hints at pausing rate hikes, USD could face downside pressure, benefiting risk assets like equities.

Earnings Season at Its Peak

Tech giants such as Alphabet, Meta Platforms, and Microsoft report earnings this week, along with Amazon and Intel. After disappointing reactions to Tesla and Netflix, the bar for positive earnings surprises is high. Sector rotation from high-growth tech to value stocks may emerge if the Fed leans hawkish.

Technical Perspective on Index Futures

• NASDAQ 100 Futures: Key breakout support at 15324/15432 remains intact. A break below 15063 would signal correction risks. - S&P 500 Futures: Positive momentum sustains the rally, with support at 4557 and 4498 reinforcing the uptrend.

Europe

• Encouraging UK inflation and retail sales data support BoE’s outlook. - ECB likely to hike by 25bps as inflation eases.

BoE’s Path Clears Amid Better Data

UK inflation and retail sales data offer relief to the Bank of England, easing pressure for aggressive hikes. Markets anticipate a 25bps hike at the August MPC meeting, with GBP positioned for volatility.

ECB Decision in Focus

The ECB is widely expected to hike rates by 25bps. A softer tone on future hikes could prompt a correction in EUR/USD, with key support between 1.1010/1.1095.

Asia

• The BoJ unlikely to alter its monetary stance despite higher core inflation. - Persistent weak Chinese data increases stimulus expectations.

BoJ Maintains Policy Status Quo

Sources suggest no immediate changes to the BoJ’s yield curve control, keeping JPY under pressure. Core inflation edged higher in June, but the BoJ sees no urgency to act.

China Awaits Stimulus Amid Weak Data

Disappointing Q2 GDP and retail sales figures underscore China’s economic struggles. Stimulus announcements could provide the much-needed market boost, but details remain scarce.

Commodities

• Oil Futures: The rally consolidates, with key support at $72.72/$75.06. A break above $77.33 would signal further upside. - Gold Futures: USD strength has capped gains, but higher lows above $1946.60 sustain bullish momentum.

On the Calendar

A dense week includes: - Central Banks: Fed (July 26), ECB (July 27), BoJ (July 28). - Economic Data: Flash PMIs, US Consumer Confidence, Core PCE, Employment Cost Index. - Earnings Highlights: Alphabet, Microsoft, Meta Platforms, Amazon, Chevron, Exxon Mobil.

‍