Market News by OnEquity

U.S. Recession Indicator Close to Turning On

According to FRED data, the threshold will be breached if the unemployment rate rises to 4.2% in this week’s employment report, which is set for release on August 2.

Economists’ Forecast for the July 2024 Employment Report
The preliminary forecast for the July employment report, to be released Friday, calls for a net gain of 200,000 jobs, with the unemployment rate expected to fall from 4.1% to 4%, according to the analyst blog The Real Economy on July 29.

Analyst Joseph Brusuelas also anticipates a 0.2% increase in average hourly earnings, which corresponds to a year-over-year increase of 3.7%. Seasonal hiring in the leisure and hospitality sector will likely be an important factor in the report. July usually presents seasonal adjustment challenges for the Bureau of Labor Statistics, and this year is no exception.

If the estimate is incorrect, it could point to a faster pace of hiring overall. Additionally, the direction of the unemployment rate will be a key issue, as it has been rising due to more people entering the labor market, enticed by higher wages.

Expert Urges Fed to Cut Rates Soon to Ease Recession
While Wall Street expects Fed Chairman Jerome Powell to cut the prime rate at a Fed meeting in September, experts warn that it may already be too late to avoid a recession. Goldman Sachs and UBS predict a rate cut before the November presidential election, but not as soon as the Fed’s July meeting.

One supporter of an earlier rate cut is former New York Fed President Bill Dudley, who initially advocated for higher rates for longer but now urges an immediate cut.

The former New York Fed president argues that the economic outlook has shifted due to slowing consumer spending, rising auto repossessions, and loan defaults.

“The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s monetary policy meeting,” Dudley said on July 24.

He believes the Fed should act quickly despite skepticism about the severity of rising unemployment. Dudley stresses that delaying rate cuts could raise the risk of recession, even if it is already inevitable.

U.S. Stock Markets Soar Boosted by Federal Reserve Decision, Microsoft Fails to Deliver

U.S. stocks rose Wednesday on optimism that the Federal Reserve will lead the way to a rate cut in September, overshadowing disappointing results from Microsoft. Here’s what’s happening today in the stock market.

Optimism about the Fed
All eyes are on the Federal Reserve on Wednesday as the U.S. central bank wraps up its latest policy-setting meeting.

The Fed is expected to keep its benchmark overnight interest rate in the current range of 5.25% to 5.50%, as has been the case since last July. However, investors expect policymakers to lay the groundwork for a rate cut in September.

Futures indicate a quarter-point rate easing in September, with a remote possibility of a 50 basis point reduction, and 66 basis points of easing by Christmas.

Wall Street’s major indexes ended mixed on Tuesday, with both the S&P 500 and NASDAQ Composite on track to end the month lower. The NASDAQ Composite lost nearly 3%.

Meanwhile, the Dow Jones Industrial Average is on track to end the month up more than 4% as the market has moved away from large tech stocks in favor of smaller, more cyclical-oriented companies.

Microsoft’s Earnings Miss Projections
Aside from the Fed, investors will also have to digest quarterly results from several market heavyweights.

Microsoft (MSFT) shares lost nearly 3% before the market opened after its fourth-quarter cloud revenue growth missed market estimates.

While the company’s global profit barely beat estimates for the June quarter, revenue from Azure, Microsoft’s cloud business, rose 29%, below estimates of 30.2% and slowing compared to the previous quarter’s 31% increase. This occurred despite a $5 billion investment in artificial intelligence during the quarter.

On the flip side, shares of Advanced Micro Devices (AMD) rose 9% before the market opened, while rival NVIDIA (NVDA) added nearly 5% after AMD generated better-than-estimated earnings and forecast positive revenue for the current quarter, citing strong demand in artificial intelligence.

AMD’s earnings highlighted a potential divide in AI-supported profits, where vendors of AI-enabled equipment appear to be outperforming their customers.

Meta Platforms, Next
Meta Platforms (META) is the latest of the large-cap tech giants to release quarterly results this week after the market close.

Meta, which owns and operates Facebook, Instagram, Threads, and WhatsApp, among other products and services, is expected to report a 20% increase in quarterly revenue.

Other companies releasing figures include Boeing (BA) before the bell, as well as Qualcomm (QCOM), Etsy (ETSY), and Carvana (CVNA) just after the session closes.

Crude Oil Prices Soar on Middle East Tensions
Crude oil prices soared on Wednesday as the assassination of Hamas leader Ismail Haniyeh in Iran heightened tensions in the Middle East, raising the possibility of a wider conflict impacting supply.

Multiple media outlets reported that Ismail Haniyeh was killed in an Israeli strike, which could escalate the conflict between Israel and Hamas, which extended into its ninth month in July.

It could also mean an escalation of tensions between Iran and Israel, following a series of missile strikes between the two earlier this year, and stoke fears of all-out war in the Middle East, especially after Israel carried out strikes on Tuesday against the Lebanon-based, Iranian-backed group Hezbollah.

The news has overshadowed data from the American Petroleum Institute, which reported that U.S. inventories fell by nearly 4.5 million barrels the previous week.

If corroborated by official data to be released later in the session, this would mark the fifth straight week of declining U.S. inventories, as demand for fuel remained supported by the travel-filled summer season.

Trump plans to use cryptocurrencies to pay off U.S. debt and be a leader in the sector

Former President Donald Trump recently hinted at the potential usefulness of cryptocurrencies to pay down the $35 trillion U.S. national debt. In an interview on Fox Business and while participating in the Bitcoin2024 Conference, Trump argued that the cryptocurrency sector could play a role in the national financial strategy, although he did not provide specifics on how this proposal would be carried out.

Trump’s changing perspective on cryptocurrencies
Trump, a Republican candidate for president, stated that the U.S. should take the lead in the cryptocurrency sector, which he called having a “very high intellectual level.” This change represents a marked difference from his previous comments, as he has in the past branded digital assets as “a disaster waiting to happen” and, in May 2018, during his presidency, went so far as to order then-Treasury Secretary Steven Mnuchin to take action against Bitcoin for alleged fraud. At the Bitcoin2024 Conference, Trump made the case that, if re-elected, he would prevent the government from selling seized Bitcoin on the open market. Instead, he would hold the asset strategically as an investment, indicating a more positive view regarding the potential of cryptocurrencies.

Campaign strategy and cryptocurrencies
Trump’s latest comments also correspond with his efforts to raise funds for his election campaign by positioning himself as a supportive candidate for cryptocurrencies, unlike President Joe Biden. This approach indicates Trump’s recognition of the increasing importance of cryptocurrency in U.S. economic and political debates. Ultimately, Trump’s statements show a nuanced shift in his attitude toward cryptocurrencies, viewing them as a tool for managing the national debt and strengthening his campaign by appealing to cryptocurrency advocates.

Senator Cynthia Lummis has recently proposed a bill to constitute a strategic Bitcoin reserve in the United States to combat the harmful effects of rampant monetary printing and preserve U.S. financial supremacy in global markets and trade.

The Wyoming senator has set a goal of having the U.S. Treasury purchase 5% of the total Bitcoin supply, preserving the scarce decentralized asset for at least 20 years as a bulwark against central bank monetary devaluation and poor fiscal policy.

Market Highlights for the Week: Economy, Markets, Oil

Concerns about the economy continue, especially over fears that the Federal Reserve has kept interest rates high for too long, hurting growth. More high-profile earnings reports are expected, and oil prices look set to remain volatile due to a combination of recession fears and geopolitical risks. Here’s a look at what will happen in the markets this week.

U.S. Data and Fed Speeches
After Friday’s weak July jobs report, which fueled fears about a possible recession, the economic calendar for this week is notably lighter. On Monday, the Institute for Supply Management will release its service sector index, which is expected to indicate moderate growth.

On Thursday, investors will hear about the state of the labor market with the weekly release of initial jobless claims, which are expected to pull back slightly from their highest level in nearly a year. Investors will also hear from San Francisco Fed President Mary Daly and Richmond Fed President Thomas Barkin, who kept rates unchanged last week but left open the possibility of a rate cut in September.

More Earnings Reports
While many large companies have already reported their results, a few big names are still to come. Caterpillar (CAT) and Walt Disney (DIS) will shed light on manufacturing and consumer health. Reports from Eli Lilly (LLY) and Super Micro Computer (SMCI), key players in AI, are also expected. U.S. stock markets fell for a second day on Friday, with the Nasdaq Composite slipping into correction territory.

This was driven by concerns over an economic slowdown and fears that the Federal Reserve may have delayed a rate cut too long, compounded by drops in Amazon (AMZN) and Intel (INTC) due to weak quarterly results and outlooks.

China Outlook
This week, investors will be treated to information on how China’s economic recovery will evolve in the second half of the year through a series of economic data. The week begins with a private sector survey on services activity, to be followed by trade data on Wednesday and a consumer price reading at the end of the week. Recent data point to a gloomy outlook for the world’s second-largest economy, and recent rate cuts have highlighted the urgency of Beijing’s efforts to shore up growth. Policymakers will be closely watching Friday’s inflation figures for clues on how much more needs to be done to boost weak domestic demand.

Reserve Bank of Australia Decision
The Reserve Bank of Australia is expected to leave interest rates unchanged at its next policy meeting on Tuesday after data last month indicated that core inflation unexpectedly slowed to a two-year low in the second quarter and that economic growth moderated in the first quarter.

Market participants will be looking to future central bank guidance, with a 70% chance of a rate cut later in the year if inflation continues to slow.

Oil Prices
Oil prices declined on Friday, settling at their lowest level since January, as economic data from the U.S. and China, the largest oil importer, heightened concerns about demand expectations.

The weak U.S. jobs report, coupled with slowing manufacturing activity in China, pressured prices lower on the risk that the sluggish global economic recovery will impact oil consumption. Oil investors are also keeping an eye on the Middle East, where the Iranian-backed Lebanese group Hezbollah said its conflict with Israel had entered a new phase. Meanwhile, last Thursday’s OPEC+ meeting did not change the group’s production policy, which plans to start withdrawing production cuts from October.

Dollar Falls on Recession Fears; Yen and Swiss Franc Gain

The U.S. dollar fell sharply on concerns about U.S. economic growth, while the Swiss franc and Japanese yen saw strong safe-haven demand.

Dollar Loses Ground on Recession Fears
The dollar’s sell-off came after data released on Friday showed a significant cooling in U.S. job creation in July, and U.S. Treasury yields fell as traders began to consider the likelihood of a hard landing for the U.S. economy due to the prolonged period of high interest rates.

Traders now expect the Federal Reserve to cut interest rates in September, and anticipate larger cuts than the previously expected 50 basis points at the September and November Federal Open Market Committee meetings.

Wells Fargo now estimates two 50 basis point rate cuts at the Federal Open Market Committee meetings in September and November.

This forecast marks a considerable change from past predictions due to emerging economic indicators, with recent data raising concerns about the economy.

Swiss Franc in Demand as Carry Trades Unwind
In Europe, the Swiss franc soared as traders sought safety in this turbulent environment.

The Swiss franc hit a seven-month high against the dollar, with USD/CHF losing nearly 1.4% to 0.8458.

The Swiss currency also benefited from the unwinding of carry trades, in which investors borrow money from low-interest-rate economies such as Japan or Switzerland to finance investments in higher-yielding assets elsewhere, a strategy that has gained popularity recently.

The EUR/USD rose nearly 0.6% to 1.0974 due to the dollar’s general weakness.

Expectations of further cuts by the European Central Bank have also increased, although very few traders have been long on the euro since the start of the political turmoil in France at the end of June.

Weaker global growth is not good for the pro-cyclical euro, although the fact that the narrative of U.S. exceptionalism could come back to earth with a bump should support EUR/USD, given that the Fed is poised to cut rates sharply.

GBP/USD lost 0.4% to 1.2752 on fears that the Bank of England will also delay, as the UK central bank did not cut interest rates until the previous week.

Moreover, the decision to cut rates by a quarter point to 5% was split among policymakers (5-4), indicating that the central bank may remain cautious going forward.

Yen Hits Seven-Month High
USD/JPY sank 3.2% in Asia to 141.86, and the yen hit a seven-month high against the dollar as traders unwound their carry trades in anticipation of major rate cuts by the Federal Reserve.

The rise in the yen, which hit a 38-year low against the dollar in July, was also helped by the Bank of Japan’s 15 basis point rate hike last week.

The USD/CNY was down 0.6% to 7.1167, and the yuan rallied due to a weaker dollar, despite uncertainty about the economic slowdown in China.

Dollar rebounds after sharp losses; euro and pound lose ground

The U.S. dollar gained ground on Tuesday, reversing some of its recent losses, as some calm returned to currency markets.

The dollar recovers after heavy losses
In recent weeks, the dollar has been significantly affected by fears of a possible U.S. recession after a series of weak labor market data, which has triggered bets that the Federal Reserve will cut rates more than initially expected.

Right now, traders are estimating 110 basis points of easing this 2024 by the Fed, with about an 80% chance of a 50 basis point cut in September, after fully discounting a 50 basis point cut on Monday.

Fed policymakers on Monday pushed back against the notion that the weaker-than-expected July jobs data means the economy is in a recessionary free fall but also noted that the Fed will have to cut rates if it wants to avoid such an outcome.

Austan Goolsbee, president of the Chicago Fed, said, “The employment numbers are weaker than expected, but they still don’t look like a recession.” “I think in making decisions you have to take into account where the economy is headed.”

Both the euro and the pound lose ground
Turning to Europe, the dollar gained ground against the euro and sterling as the European Central Bank and the Bank of England have begun interest rate cuts aimed at stimulating their respective economies.

The EUR/USD lost about 0.4% to 1.0911, after touching a seven-month high of 1.100 on Monday, following news that retail sales lost 0.3% in June in the eurozone, meaning that consumers are likely to remain tight.

On the other hand, German industrial orders rose more than forecast in June, by 3.0% compared to the heavy month, indicating a glimmer of light and hope for the European continent’s largest economy.

The GBP/USD lost about 0.5% to 1.2706, giving back some of its recent gains in the wake of the strengthening dollar.

The Bank of England cut interest rates last week, reducing the benchmark rate by about a quarter point to 5%.

Yen falls for first time in August
USD/JPY rose about 0.2% to 144.47 and the yen weakened for the first time in August, consolidating after flashy moves in recent days.

The yen had benefited from increased safe-haven demand in the face of the broader financial market slump. Bullish signals from the Bank of Japan, which raised interest rates and hinted at further hikes, also boosted the currency, as did the reversal of carry trades.

USD/CNY rose 0.3% to 7.1504, with the yuan losing strength in light of this week’s trade and inflation data.

AUD/USD was down 0.2% to 0.648, with the Australian dollar retreating following comments from Reserve Bank of Australia Governor Michele Bullock that rate cuts are further away.

The Australian central bank left interest rates unchanged on Tuesday, as expected, while reiterating that it was not ruling out anything to control inflation.

U.S. Stock Markets Rise, with Strong Earnings Supporting Sentiment Shift

U.S. stock markets rose on Tuesday, showing signs of recovery from Monday’s decline, despite continuing concerns about an economic slowdown.

Recession Fears Lead to Heavy Losses
Concerns about a significant slowdown in economic growth, following a string of poor data related to the purchasing managers’ index and the labor market, caused the DJIA, S&P 500, and Nasdaq to lose nearly 5%, 6%, and 8% respectively in three days, marking their worst three-day performance in more than two years.

Weak economic data fueled fears that the Fed would keep interest rates higher for longer and that any cut by the central bank right now would not be enough for the economy to achieve a soft landing.

That said, markets increased their estimates for a 50 basis point cut in September and were looking at at least 100 basis points in rate cuts this year, according to CME FedWatch.

2Q Earnings Follow
Caterpillar (CAT) stocks rose 1% after the industry giant unveiled a slight quarterly profit increase, supported by resilient demand for its larger excavators and other construction equipment amid rising U.S. infrastructure spending.

Shares of Uber Technologies (UBER) rose more than 5% as the ride-hailing company beat estimates for both second-quarter revenue and core earnings on continued demand for its ride-sharing and food delivery services.

Super Micro Computer (SMCI) will also release its results after the bell, and is set to provide more clues about demand from the artificial intelligence industry.

Additionally, Palantir Technologies (PLTR) rose nearly 11% after the software services provider raised its annual revenue and profit forecast for the second time in 2024, while Lucid Group (LCID) rebounded more than 9% due to better-than-estimated second-quarter revenue and after the electric vehicle maker unveiled that its largest shareholder, Saudi Arabia’s Public Investment Fund (PIF), will invest about $1.5 billion in cash.

Media giants such as Walt Disney (DIS) and Warner Bros Discovery (WBD) will release their results on Wednesday.

Oil prices continue to fall
Crude oil prices declined on Tuesday and continued to fall in a volatile market after hitting eight-month lows on concerns about global demand.

Concerns about a possible escalation of the war between Israel and Hamas, especially after Iran vowed to retaliate for the assassination of a Hamas leader in Tehran, have been supportive for oil markets.

However, confidence remains very fragile due to fears that slowing economic growth will dampen demand, especially after disappointing U.S. labor market data raised concerns about a hypothetical U.S. recession.

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Dollar rises, yen falls after Bank of Japan rules out another rate hike

The U.S. dollar rose on Wednesday, while Japan’s yen sank after the Bank of Japan tried to calm the turbulent waters by signaling that it will not raise rates further if markets remain highly volatile.

Dollar recovers ground after sharp losses
The dollar gained some ground on Wednesday, helped in part by the yen’s weakness and amid bets that U.S. economic growth will not deteriorate as sharply as markets expect.

The dollar was hit hard by fears of a U.S. economic recession after a series of weak labor market data, which increased bets that the Fed will have to cut rates more than initially expected.

However, market traders have also adjusted their estimates of Fed cuts as the week has moved on, with markets now estimating a 70% chance that the Fed will cut rates by 50 basis points by September, according to CME’s FedWatch tool, compared to 85% the day before.

Similarly, there are analysts who point out that the market trend is considerably higher than it was a week ago, but they suggest that no serious market disruptions have been generated so far that would lead policymakers to intervene.

Euro and sterling in tight spaces.
EUR/USD lost 0.1% to 1.0918, retreating further from Monday’s seven-month high of 1.1009 on the back of the rising dollar

Meanwhile, GBP/USD rose 0.2% to 1.2708, not far from the five-week low it hit last session.

Data released on Wednesday indicated that the U.K. economy grew more than expected in 2022.

The Office for National Statistics said Wednesday that it now believes the U.K. economy grew by 4.8% in 2022, up from an earlier estimate of 4.3%.

Yen plunges sharply after rate hike option is downplayed
In Asia, USD/JPY rose 2.2% to 147.47, with the yen sinking sharply after Bank of Japan officials downplayed the importance of rate hike estimates.

BOJ Deputy Governor Shinichi Uchida noted that the bank will not raise interest rates when markets behave unsteadily, comments generated by volatile movements in Japan’s currency.

All in all, the yen remained well above the 38-year low reached this 2024, and is likely to receive further support as Japan’s economy improves helped by wage growth.

USD/CNY rose 0.4% to 7.1862, and the yuan barely flattened its losses after mixed trade data.

China’s trade balance contracted more than previously thought in July, weighed down by poor exports after the European Unipon imposed heavy tariffs on imports of Chinese-made electric vehicles in early July.

Although Chinese imports beat estimates, fueling some bets on a recovery in local demand.

The focus right now will be on inflation data due out this week.

U.S. stock markets grow; Super Micro Computer falls

U.S. stock indexes rose on Wednesday, following Wall Street’s recent rally, although sentiment remains fragile.

Wall Street indexes rose on Tuesday, showing signs of improvement and recovering some of the heavy losses registered the previous week amid concerns about a possible U.S. recession and a slowdown in technology.

The S&P 500 along with the NASDAQ Composite rose 1%, rebounding from three-month lows, while the Dow Jones Industrial Average was up about 0.8%.

These futures were boosted by comments from a senior Bank of Japan official who downplayed the bank’s plans to raise interest rates, in an environment where markets remain volatile.

Highly stressed market environment
That said, confidence in risk assets remains fragile amid persistent concerns about slowing growth and lackluster earnings.

For its part, Goldman Sachs indicated that its Financial Stress Index (FSI) has tightened considerably in recent days, although it remains within normal historical levels.

According to a note written by Goldman economists, most of the tightening is due to increased volatility in equity and fixed income markets, while short-term financial market conditions appear to be generally stable.

The economists also added that clearly market tightness is more noticeable today than a week ago, but for now, according to their ISF, there is no need for policymaker intervention.

Walt Disney Results
There are more earnings to digest Wednesday, including entertainment giant Walt Disney (DIS), CVS Health (CVS) and Shipify (SHOP).

Super Micro Computer (SMCI) likewise will be in the spotlight, due. as shares of the data center operator plunged in pre-market trading in the wake of its June earnings missing estimates, raising concerns about how much demand the artificial intelligence industry was producing.

Airbnb (ABNB) also fell sharply after the home-rental company estimated third-quarter revenue relative to estimates and signaled of shorter booking sales, indicating that travelers were waiting until the last minute to book in the wake of economic uncertainty.

The resilience of S&P 500 earnings remains unchanged despite growing recession fears and recent negative price action, Cati strategists said in a note Wednesday.

The bank’s Citi Economic Data CHnage index, which summarizes U.S. macroeconomic data holdings, points to further deterioration in the U.S. economy.

Interestingly, though, despite economic data showing weakness in 2022, S&P 500 earnings growth was unchanged rather than significantly negative, as moving earnings recessions mitigated the impact at the overall index level.

On an overall outlook, strategists remain confident in their forecast of $250 per EPS for the S&P 500 this year, which is slightly higher than the current bottom-up consensus of about $243.

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Dollar Rises Ahead of CPI

The U.S. dollar rose on Monday during a light trading day as traders awaited the release of key inflation data later in the week, seeking clues about the Federal Reserve’s upcoming policy decisions.

Dollar gains on CPI expectations
The dollar received support at the end of the previous week after better-than-expected U.S. jobs data led traders to trim their bets on interest rate cuts by the Federal Reserve in 2024.

Earlier in the week, the U.S. currency was reported to have weakened due to concerns about the U.S. economy, coupled with the Bank of Japan’s hawkish stance.

Fed funds futures imply a 49% chance of a half-point rate cut in September, down from 100% the previous week.

This backdrop of uncertainty makes markets highly vulnerable to data and events, most notably the U.S. consumer price index on Wednesday.

July CPI data is expected to show that inflation continues to approach the Fed’s 2% annual target, with forecasts indicating that annual core inflation will dip to 3.2%, the lowest level since April 2021.

Sterling Awaits Inflation Data
EUR/USD rose to 1.0920, close to the high of 1.1009 reached last week, marking the pair’s highest level since January 2 of this year.

In Europe, the pair is showing signs of a quiet start to the week, with a sparse European economic data calendar and few European Central Bank speeches on the agenda.

This has led the market to focus on the first revision of the Eurozone’s GDP data for the second quarter.

The European Central Bank began cutting interest rates in June, and many expect policymakers to agree on another rate cut scheduled for September.

GBP/USD traded flat at 1.2759 at the start of a week full of U.K. economic data, as investors look for signs that the Bank of England will continue its rate-cutting cycle next month.

The BoE cut rates for the first time since 2020 earlier this month, and markets are currently pricing in a 33% chance of another quarter-point cut at its September meeting.

Data on wage growth will be released on Tuesday, followed a day later by inflation figures, which will be closely scrutinized for signs of ongoing price pressures.

Yen plunges
In Asia, USD/JPY rose nearly 0.4% to 147.25, retreating further after a large-scale rally in the previous month.

Economic data and central bank meetings in Asia kept investors on edge, while a public holiday in Japan limited volumes.

USD/CNY rose 0.2% to 7.1811, while the yuan retreated sluggishly.

Although large losses have been stemmed by continued support from the People’s Bank, skepticism about the Asian giant’s economy has kept traders mostly short on the currency.

This week, the focus is on China’s industrial production and retail sales data to gain more insight into the country’s primary economic drivers.

U.S. Stocks Rise, Inflation Data Trends Upward

U.S. stock indexes traded quietly on Monday, appearing stable after the wild swings of the previous week, with attention focused on key inflation data due later this week.

More CPI data to come
This week, attention will focus on the consumer price index inflation data, due on Wednesday, for more signals regarding the economy and inflation cooling.

The reading is expected to have cooled slightly in July compared to last month, a trend likely to increase optimism about lower interest rates.

According to CME FedWatch, investors are torn between a 25 or 50 basis point cut by September. The Fed is widely expected to begin cutting rates then, amid growing signs of a cooling U.S. economy.

The Fed recently indicated that any further encouraging economic data will set the stage for a rate cut in September and that it would not need to see inflation reach its 2% annual target to begin cutting rates.

Wall Street shows signs of recovering from the previous week’s losses
Wall Street indexes closed Friday with slight gains, ending the week flat.

The decline in technology stocks, coupled with fears of an economic recession in the United States, caused stock market indexes to start the previous week with considerable losses, with the Nasdaq entering correction territory from its recent highs.

However, bargain-buying in technology stocks, coupled with the belief that U.S. economic recession fears may be exaggerated, helped Wall Street recover most of its losses.

In addition to Wednesday’s inflation data, there will also be some earnings releases this week, even though the earnings season is mostly over.

Home Depot (HD) and Cisco Systems (CSCO) will release their results later in the week.

Crude oil rises again
Crude oil prices rose for a fifth consecutive session on Monday as concerns about the U.S. economy eased, while geopolitical tensions in the Middle East remained elevated.

Iran and Hezbollah have vowed to respond to the assassinations of Hamas leader Ismail Haniyeh and Hezbollah military commander Fuad Shukr.

Axios reported on Sunday that Israeli intelligence believes Iran will attack Israel directly within days.

Market Highlights for the Week: Inflation, Volatility, UK

Investors will be watching key inflation data set to be released next Wednesday for clues about the potential magnitude of an expected rate cut by the Federal Reserve in September. Markets are likely to remain volatile, and retail sales results will be monitored for signs of strength in consumer spending. Here’s a look at what’s expected in the markets this week.

CPI Data
July consumer price index (CPI) data is expected to indicate that inflation continues to move closer to the Fed’s 2% annual target. A report reflecting only a slight cooling could ease fears that the Fed has pushed the economy into a crisis by keeping rates elevated for too long. However, a negative report could reignite recession fears and trigger market volatility once again. The economic calendar also includes July retail sales figures, as well as the weekly report on initial jobless claims.

Investors will also have a chance to hear from several Fed officials, including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, and Chicago Fed President Austan Goolsbee. Comments from these Fed officials last Thursday suggested they are increasingly confident that inflation is moderating enough to warrant rate cuts.

Market volatility
Investors are likely to remain nervous this week after last Monday’s stock market plunge, triggered by a combination of fears of a U.S. recession and the unwinding of yen-funded global trades. On Thursday, a larger-than-expected decline in jobless claims showed that fears about the health of the labor market were overblown, helping markets recover most of their losses by Friday’s close. In the week ahead, attention will focus on whether the Fed’s assessment of expected rate cuts is supported by upcoming economic data and how much of the yen-financed selloff will persist.

Concerns about the possible escalation of conflict in the Middle East and the impending U.S. elections also suggest that volatility will not subside anytime soon.

Corporate results
Earnings season is in its final phase, and most companies have already reported their quarterly financial results. But there are a few notable names left to report next week, such as retailers Home Depot (HD) and Walmart (WMT).

Traders will be watching to see what retailers say about the resilience of consumer spending, a key driver of economic growth, especially given recent signs of weakness in economic data. Other big names on the earnings agenda include Cisco Systems (CSCO) and Fox Corporation (FOX).

Oil prices
Oil prices rose last week, supported by comments from Federal Reserve policymakers indicating that they may cut interest rates in September, which eased concerns about demand. Meanwhile, the risk of an escalation of conflict in the Middle East continues to heighten supply risks. Brent gained more than 3.5% for the week, while U.S. crude futures rose more than 4%.

Fears of a possible recession have subsided, bolstering demand expectations. Simultaneously, geopolitical tensions in the Middle East have fueled fears of a potential conflict that could disrupt production in the region and dent global crude supplies.

The possibility of retaliatory attacks by Iran against Israel heightens concerns about oil supplies in the world’s largest oil-producing region.

UK data
The U.K. will release a series of economic data that will influence monetary policy forecasts for the coming months. Wage growth data will be released on Tuesday, followed a day later by inflation figures, which will be closely watched for signs of persistent price pressures, particularly in the still-booming services sector. Thursday’s monthly GDP data is expected to show near-zero growth in June, but the economy is estimated to have grown by 0.6% in the second quarter.

Meanwhile, Friday’s retail sales data is expected to rebound in July after last month’s drop. The Bank of England cut rates for the first time since 2020 earlier this month, and markets are currently estimating a 33% chance of another quarter-point cut at its September meeting.

Dollar rises in light of PPI; Pound rises on wage data

The U.S. dollar advanced within a small range as traders awaited the July producer price index data, the first of the week’s inflation data, as a roadmap for future monetary policy decisions by the Federal Reserve.

The dollar awaits PPI data
The producer price index, which measures changes in producer prices, is expected to rise 0.2% month-over-month in July, which would mean an anal increase of 2.3%, down from 2.6% last month.

The underlying figure, which does not take into account volatile components such as food and energy, would also rise by 0.2% on a monthly basis, down from 0.4% in June, with an annual increase of 2.7%, down from 3.0%.

According to analysts, they expect a consensus figure of 0.2% month-on-month in the core and underlying measures to ease market jitters about a round of CPI/PCE hikes that would deal a blow to risk sentiment just as global stock indices finish their recovery from recent losses.

On Wednesday, consumer price index data will be released, which is also expected to indicate a slight cooling of inflation in July.

Investors will be scrutinizing the data to determine whether the Fed will implement a 50 basis point or a 25 basis point cut at its September meeting, according to CME’s FedWatch tool, traders are evenly split between the two options.

At the end of last month, the Fed kept the policy rate in the same 5.25%-5.50% range where it has been for more than a year, although it indicated that a rate cut could be generated in September if inflation continues to cool.

Pound rises on wage growth
Turning to Europe, GBP/USD rose 0.3% to 1.2801 following the release of data showing that UK wage growth excluding bonuses rose by around 5.4% in June.

Although this figure is a fall from the revised 5.8% last month, it is still above the estimated 4.6% growth and signals that the Bank of England will struggle if it wants to curb inflation completely.

Additionally, UK grocery inflation rose this for the first time, the increase not recorded since March last year, with market researcher Kantar reporting that annual grocery price inflation was 1.8% in the four weeks to August 4, up from 1.6% in the previous four-week period.

EUR/USD fell about 0.1% to 1.0922, with the euro losing slightly after consumer prices in Spain fell 0.5% in July, which appears to be a 2.8% annual rise.

The European Central Bank began cutting interest rates in June, and many expect policymakers to agree to another reduction in September, especially as inflation shows signs of dissipating.

Yen loses ground
Turning to Asia, USD/JPY rose 0.4% to 147.81 with the yen losing ground on a Reuters report that the Japanese parliament is planning to hold a special session on August 23 to discuss the central bank’s decision last month to raise interest rates.

Last week, the yen fell to near the 141 level on increased safe-haven demand and a reversal of carry trades, although doubts remain about the Bank of Japan’s room for further rate hikes in 2024.

The USD/CNY lost about 0.1% to 7.1704, with industrial production data along with retail sales expected later this week.