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Wednesday morning brings a continuation of the calm in financial markets. The absence of new, sudden global news allows investors to fully focus on macroeconomic fundamentals and preparations for the key event of this week – tomorrow's European Central Bank (ECB) meeting. Today's session will be relatively quiet, and the focus of capital will shift primarily to key inflation data from the United Kingdom, which will complete the picture of the local economy following yesterday's labor market data.
Key Highlights Today
- Key test for UK inflation. Today at 09:00, we will learn the UK CPI (Consumer Price Index) reading for June. As a reminder, yesterday markets analyzed the local labor market report, where strong wage growth made easing monetary policy more difficult. Today's decline in core inflation, or a potential upside surprise, will be a decisive piece of the puzzle for the Bank of England (BoE) ahead of their interest rate decision scheduled for July 30. This data will directly translate into volatility for the pound sterling (GBP) and the pricing of British bonds. (Sources: ONS).
- Markets hold their breath ahead of Thursday's ECB decision. As we have written in recent days, capital in Europe is positioning itself for tomorrow's meeting of the European Central Bank. This institution faces a dilemma: a weakening manufacturing sector would require rate cuts and cheaper credit, but services inflation remains "sticky" (difficult to bring down permanently, remaining at an elevated level). Currently, investors are assuming a pause scenario, i.e., keeping the deposit rate at 2.25%. However, more important than the decision itself will be the afternoon communication from President Christine Lagarde and her assessment of the future inflation path. (Sources: European Central Bank; Eurostat).
Market Background
- Tech earnings season is unforgiving. We would like to remind you that the quarterly earnings season is still underway on Wall Street. In an environment of still-high interest rates, capital is highly demanding. Technology companies (so-called Big Tech) with lofty valuations must deliver flawless results and optimistic forecasts. Any disappointment risks a sharp sell-off, forcing investors to be highly selective in their portfolios.
- Pressure on emerging markets persists. We are observing the continuation of a trend where high US Treasury yields and a strong US Dollar (USD) act as a magnet for global capital. This flight to "safe havens" traditionally drains liquidity from Emerging Markets, forcing their central banks to maintain a hawkish (restrictive) stance.
Key Events to Watch
- 22.07 (16:30) – USA: Crude Oil Inventories. The weekly EIA (Energy Information Administration) report on US crude oil stockpiles. This data is particularly important for the pricing of Brent and WTI barrels amid ongoing geopolitical tensions that could impact energy supply chains.
- 23.07 (03:30) – Australia: Employment Change and Unemployment Rate. Key data from the Australian labor market for June. If employment remains strong, the local central bank (RBA) will gain arguments to keep interest rates high, which could support the Australian dollar (AUD).
- 23.07 (14:15 and 14:45) – Eurozone: ECB Interest Rate Decision and Press Conference. The most important macroeconomic event of the week. The decision on the cost of money and the subsequent address by President Christine Lagarde will define the sentiment on European trading floors and the euro (EUR) exchange rate for the coming weeks.
- 23.07 (14:30) – USA: Initial Jobless Claims and Canada: Retail Sales. Simultaneously, we will see the latest barometer of the US labor market health (important for Fed policy) and retail sales data from Canada, reflecting the strength of the local consumer.
- 24.07 (01:30) – Japan: Core CPI Inflation. The final inflation print ahead of the upcoming Bank of Japan meeting. An acceleration in price dynamics could bolster expectations for policy tightening by the BoJ, which typically strengthens the Japanese yen (JPY).
- 24.07 (from 09:15) – Europe and USA: Preliminary PMI (Purchasing Managers' Index) Indicators. Friday's series of readings illustrating the health of manufacturing and services in the world's largest economies (France, Germany, Eurozone, UK, USA). These indicators (where the 50-point mark separates expansion from contraction in the sector) will provide the first picture of the economic situation at the beginning of the third quarter.