What to watch on the external market next week: The Federal Reserve leads the "Central Bank Super Week". Can the situation in the Middle East cool down?
The international market has been in a state of flux this week, with the war between the United States and Iran continuing to be tense, and chip stocks continuing to be turbulent. In terms of market, U.S. stocks fell collectively, with the Dow Jones Industrial Average falling 0.38% for the week, the Nasdaq Composite Index falling 2.13% for the week, and the S&P 500 Index falling 0.61% for the week. The three major European stock indexes rose across the board, with the British FTSE 100 index rising 1.28% on the week, the German DAX30 index rising 1.08% on the week, and the French CAC40 index rising 0.40% on the week. There will be a lot to watch next week, with the Federal Reserve’s interest rate decision being the absolute focus.
The international market has been in a state of flux this week, with the war between the United States and Iran continuing to be tense, and chip stocks continuing to be turbulent. In terms of market, U.S. stocks fell collectively, with the Dow Jones Industrial Average falling 0.38% for the week, the Nasdaq Composite Index falling 2.13% for the week, and the S&P 500 Index falling 0.61% for the week. The three major European stock indexes rose across the board, with the British FTSE 100 index rising 1.28% on the week, the German DAX30 index rising 1.08% on the week, and the French CAC40 index rising 0.40% on the week. There will be a lot to watch next week, with the Federal Reserve’s interest rate decision being the absolute focus. The market generally expects to keep interest rates unchanged this time, but with the recent surge in energy prices, investors will closely monitor policy signals to determine when the Federal Reserve will resume raising interest rates. The Bank of Japan, the Bank of England, etc. will also announce interest rate decisions, and the outside world will also pay attention to the Eurozone GDP and inflation data. The performance of star technology stocks such as Microsoft, Amazon, and Meta will be disclosed. Federal Reserve announces interest rate decision The Federal Reserve will announce its interest rate resolution on the 29th local time, and the market expects the federal funds rate to remain unchanged in the range of 3.50% to 3.75%. The core focus of the market is whether the policy statement will release clues about a 25 basis point interest rate hike in September. Refinitiv data shows that U.S. money markets have fully priced in a rate hike at the next meeting. ING analyst James Knightley wrote in a report that Fed Chairman Warsh has consistently avoided forward guidance and preferred brief policy statements, making it difficult for investors to obtain a clear signal. Combined with previous U.S. CPI, PPI, and employment data that were all lower than expected, the motivation for this meeting to release a tough signal is limited. However, the potential risks of soaring energy prices and rising inflation due to demand from the AI industry will still make the market bet on an interest rate hike in September. In contrast, ABN AMRO believes that the Fed's baseline scenario of keeping interest rates unchanged throughout 2026 is provided that geopolitical tensions between the United States and Iran significantly ease in the coming weeks rather than dragging on for several months. In terms of data, U.S. second-quarter GDP data, the Fed’s core inflation indicator June PCE price index, and initial jobless claims data for the week will be released on the 30th, which may affect the outside world’s judgment on the Fed’s interest rate hike point. Other indicators worthy of attention include the initial value of durable goods orders in June and the Conference Board's consumer confidence index in July. The financial reporting season is getting better. In addition to technology giants such as Microsoft, Meta, Apple, and Amazon, industry leaders such as Coca-Cola, Boeing, UPS, Procter & Gamble, Mastercard, Exxon Mobil, AbbVie, and Chevron are also receiving attention. Affected by the situation in the Middle East, international oil prices surged further this week. The front-month contract of WTI crude oil rose 9.21% on the week to US$89.31/barrel, and the front-month contract of Brent crude oil rose 9.85% on the week to US$96.78/barrel, once exceeding the US$100 mark during the session. The Houthi armed forces attacked two Saudi oil tankers in the Red Sea channel this week, forcing many remaining oil tankers to turn around and bypass the Suez Canal. Some ships can only sail around the Cape of Good Hope in Africa to Asia, significantly lengthening the voyage. Julius Baer believes that the current surge in oil prices is likely to be unsustainable. As for the new round of conflicts in the Red Sea and the Strait of Hormuz, the essence is that both sides are raising their bargaining chips for the next round of negotiations, not an all-out war. The precious metals market is picking up. COMEX gold futures for July delivery on the New York Mercantile Exchange rose 1.37% on the week to US$4,067.60 per ounce. COMEX silver futures rose 4.67% on the week to US$58.65 per ounce. Fund flows show that gold ETFs have experienced small outflows this week, and institutions have reduced their positions in advance to avoid the uncertainty of next week's Federal Reserve interest rate meeting. Physical buying by global central banks continues to take on dips, and the $4,000 mark is firmly supported. Negative short-term interest rates cannot reverse the long-term allocation value of gold. Oxford Economics, Morgan Stanley, etc. all believe that the benchmark expectation is that the Federal Reserve will keep interest rates unchanged in July. However, the tone of Chairman Warsh’s speech was hawkish. Short-term real interest rates are unlikely to trend downward, and gold’s rebound space is limited. If an interest rate hike is confirmed in September, there is a risk that gold prices will drop to $3,900. Bank of England expected to remain on hold The European Central Bank kept interest rates unchanged this week, having just raised interest rates once last month, and still retains the possibility of a second interest rate hike in September.
The market had previously only priced in a 20% probability of raising interest rates at this ECB interest rate meeting; but it was betting that the probability of raising interest rates at the next interest rate meeting in September was as high as 80%. Morgan Stanley analysts commented on the European Central Bank's policy statement: "The central bank's wording remains unchanged and it retains room for flexible operations. If energy prices remain high, we maintain our judgment of raising interest rates again in September." Stefan Gluck, chief economist of EFG International, said: "This time on hold shows that the European Central Bank prefers to let inflation slowly fall back to the 2% target, rather than radically tightening policies to quickly suppress inflation. Inflation has continued to be higher than 2% since 2021, but the Governing Council tolerates a slow return of inflation to the target and is unwilling to raise interest rates significantly." In terms of data, the initial second-quarter GDP data of many European countries and the initial July inflation data will dominate the trading logic of the European market next week. On the 30th, the preliminary second-quarter GDP values of the four major economies of Germany, France, Italy, and Spain, as well as the Eurozone as a whole, were simultaneously announced; on the same day, the preliminary inflation values for Spain and Germany in July were released; the European Commission released the business and consumer confidence index, and the Eurozone unemployment rate in June. On the 31st, Italy’s July business and consumer surveys were released, as well as the initial July inflation values for France, Italy and the Eurozone as a whole. The Bank of England interest rate decision is the core event in the UK next week. The market unanimously expects the benchmark interest rate to remain unchanged at 3.75%. It is expected that 7 members will support no change and 2 members will support raising interest rates. Bank of America economists believe that in the global high oil price environment, the Bank of England is likely to retain the option of subsequent interest rate hikes. Investors are also paying attention to the central bank's quantitative tightening assessment report. If the signal is released to slow down the pace of balance sheet reduction and reduce the selling of long-term government bonds, it will be positive for British bond prices.
The market had previously only priced in a 20% probability of raising interest rates at this ECB interest rate meeting; but it was betting that the probability of raising interest rates at the next interest rate meeting in September was as high as 80%. Morgan Stanley analysts commented on the European Central Bank's policy statement: "The central bank's wording remains unchanged and it retains room for flexible operations. If energy prices remain high, we maintain our judgment of raising interest rates again in September." Stefan Gluck, chief economist of EFG International, said: "This time on hold shows that the European Central Bank prefers to let inflation slowly fall back to the 2% target, rather than radically tightening policies to quickly suppress inflation. Inflation has continued to be higher than 2% since 2021, but the Governing Council tolerates a slow return of inflation to the target and is unwilling to raise interest rates significantly." In terms of data, the initial second-quarter GDP data of many European countries and the initial July inflation data will dominate the trading logic of the European market next week. On the 30th, the preliminary second-quarter GDP values of the four major economies of Germany, France, Italy, and Spain, as well as the Eurozone as a whole, were simultaneously announced; on the same day, the preliminary inflation values for Spain and Germany in July were released; the European Commission released the business and consumer confidence index, and the Eurozone unemployment rate in June. On the 31st, Italy’s July business and consumer surveys were released, as well as the initial July inflation values for France, Italy and the Eurozone as a whole. The Bank of England interest rate decision is the core event in the UK next week. The market unanimously expects the benchmark interest rate to remain unchanged at 3.75%. It is expected that 7 members will support no change and 2 members will support raising interest rates. Bank of America economists believe that in the global high oil price environment, the Bank of England is likely to retain the option of subsequent interest rate hikes. Investors are also paying attention to the central bank's quantitative tightening assessment report. If the signal is released to slow down the pace of balance sheet reduction and reduce the selling of long-term government bonds, it will be positive for British bond prices.