Over the past week, financial markets remained under the influence of the further escalation of the situation in the Middle East. Several companies published their financial data for the past quarter, which unofficially kicked off the earnings season. Now, investors' attention will shift to the final central bank decisions before a long break, as well as earnings releases from tech giants. These will be a major test for still high valuations, despite recent sharp declines in the stock markets. Therefore, the instruments worth watching closely this week are US100, EURUSD, and GBPUSD.
US100 (Nasdaq fut.)
The US tech index is entering a phase of a crucial fundamental test. Following recent severe selloffs, investors will analyze whether upcoming financial reports from Wall Street and administrative decisions in Washington will be able to improve overall market sentiment.
On Wednesday, we will learn the financial results of tech giants from the Mag7 group, namely Alphabet and Tesla, while on Thursday, Intel will present its Q2 report. These results will verify whether the high valuations of companies linked to artificial intelligence technology and the EV sector are truly reflected in hard revenue and earnings data.
Although a trade war is not a dominant headline at the moment, it is worth noting that a temporary 10% global import tariff in the US expires on Friday, unless Congress decides to extend it. Any potential expiration or modification of this policy will directly affect the margins and supply chain costs of US companies.
Tech giants' earnings seasons have redefined Wall Street trends time and again. For instance, during the market turmoil from 2021 to 2022, even a slight disappointment in the forward guidance of just one sector leader could wipe out hundreds of billions of dollars in market capitalization from the entire index in a single session, triggering a cascading sellof.
EURUSD
The major currency pair will react to a potential hawkish pause by the European Central Bank and a series of important macroeconomic readings. On Thursday, the ECB will make its interest rate decision, and markets widely expect rates to remain unchanged. June's slowdown in inflation removed the need for urgent action, but the market's focus will shift entirely to Christine Lagarde's press conference and any hints regarding a potential hike in September.
Before the ECB decision, the German ZEW economic sentiment index will be published on Tuesday. On Friday, the market will be flooded with a wave of preliminary PMI data from France, Germany, the entire Eurozone, and later in the afternoon, from the United States.
High natural gas prices and sustained energy commodity prices remain a headwind for the euro. Combined with mixed economic sentiment across Europe, this limits the room for any sustained strengthening of the single currency.
GBPUSD
The British pound faces a confluence of key political and macroeconomic events, making it one of the most volatile currency instruments this week.
On Monday, Andy Burnham is officially sworn in as the Prime Minister of the United Kingdom, becoming the seventh head of government since the 2016 Brexit referendum. A change in the country's leader always brings about a swift market evaluation of political stability.
On Wednesday, the UK's June CPI inflation report will be released. The headline figure is expected to drop to 2.7% year over year, down from 2.8%. Such a reading, combined with Tuesday's labor market data, including the claimant count and unemployment rate, could reinforce market expectations that the Bank of England will be in no rush to raise borrowing costs, given the gradual cooling of employment.
It is worth emphasizing that the British currency can be highly sensitive to turmoil around Downing Street. Although the current change of prime minister is taking place under different circumstances, the history of financial markets, including the memorable collapse of the pound and the UK gilt market crisis following the announcement of fiscal plans in autumn 2022, shows that markets can swiftly and ruthlessly price in a lack of political predictability.
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