• Nasdaq index closed with a 0.22% decrease on Friday.
• S&P 500 index saw a limited increase of 0.03%.
• Dow Jones index experienced a slight rise of 0.01%.
• The US Dollar Index closed at 101.1 with a 1.2% increase last week.
• Brent crude oil closed at 81.1 USD per barrel, showing a 1.5% increase last week.
• The 10-year US Treasury bond yield remained steady at 3.83% and is now at 3.84%.
• The 2-year US Treasury bond yield closed last week at 4.84% with a 7 basis points increase and is now around 4.86%.
• Wednesday’s focus will be on the Federal Reserve’s interest rate decision and Chairman Powell’s speech. Market participants expect the Fed to raise interest rates by 25 basis points in this week’s meeting.
• Monday will see the preliminary July S&P Global manufacturing and services sector PMI Manufacturing PMI is expected to decrease slightly, indicating increased contraction. Services PMI is expected to decline slightly, showing a mild slowdown in growth.
• Thursday will see the advance estimate of GDP growth for the second quarter in the US. Annualized quarterly GDP growth rate for the first quarter was revised upward, and second-quarter growth is expected to slow down due to tightening financial conditions.
• Friday will see the PCE deflator and personal income and spending data for June, along with data on new home sales and pending home sales for June.
• Advance data for June durable goods orders will be followed on Thursday.
• Weekly initial jobless claims data will be monitored on Thursday, indicating a tight labor market.
• Tuesday will see the Conference Board Consumer Confidence Index for July and the final data for the Michigan University Consumer Confidence Index for July on Friday.
• The European Central Bank (ECB) is expected to raise interest rates by 25 basis points in this week’s meeting, following a similar increase in the previous month.
• The preliminary PMI data for July suggests that the manufacturing sector in Europe is still contracting, while services sectors are showing growth, except for France.
• The IFO Business Climate Index for Germany declined to 88.5 in June, indicating reduced business sentiment due to global interest rate increases and China’s demand slowdown.
• Consumer confidence in the Eurozone showed a partial recovery but remained negative due to anticipated impacts of continued ECB rate increases.
• Germany’s GfK Consumer Confidence Index declined, signaling ongoing weak consumer confidence amid the impact of ECB’s rate increases.
• The focus in Asian markets is on the Bank of Japan (BOJ) interest rate decision, which is expected to maintain its ultra-loose monetary policy.

Market Snapshot: US Stocks, Dollar, Oil, and Treasury Yields

On Friday, the Nasdaq index in the United States closed with a decrease of 0.22% on a daily basis, while the S&P 500 index recorded a limited increase of 0.03% and the Dow Jones index saw a slight rise of 0.01%.

The US Dollar Index, after closing last week at 101.1 with a 1.2% increase, is currently trading at 101.

As for Brent crude oil, it closed last week at 81.1 USD per barrel, showing a 1.5% increase, and this morning it is trading at 80.8 USD per barrel.

The 10-year US Treasury bond yield remained steady at 3.83% at the end of last week and is now at 3.84%. The 2-year US Treasury bond yield, which is more sensitive to monetary policy developments, closed last week at 4.84% with a 7 basis points increase and is currently at around 4.86%.

Federal Reserve Interest Rate Decision: Markets Await The Fed’s Decision On Interest Rates, Following Expectations Of Possible Rate Hikes

On Wednesday, the focus will be on the Federal Reserve’s interest rate decision and Chairman Powell’s speech. Last month, the Fed kept interest rates steady in line with expectations, maintaining the federal funds rate range at 5.00%-5.25%. However, the newly published macroeconomic projections indicated that there would likely be interest rate hikes in the future.

According to the median forecasts for the federal funds rate, it was revised upward from 5.1% to 5.6% for the end of this year, implying two more 25 basis points interest rate hikes by the end of the year. Additionally, interest rate projections for 2024 were revised from 4.3% to 4.6%, and for 2025, from 3.1% to 3.4%.

Following the interest rate decision, Chairman Powell mentioned that they are considering slowing down the pace of interest rate increases. He emphasized that their common view is to slow down the path as they approach their interest rate target, but he refrained from describing their decision to keep rates steady in June as “tapering.” Powell stated that this meant a slowing down of the interest rate hike path, and they decided to assess the effects of monetary policy actions, with slower rate increases allowing the economy to adapt to the conditions.

Market participants expect the Fed to raise interest rates by 25 basis points in this week’s meeting. In addition to the interest rate decision, investors will closely monitor the Fed’s statement and Powell’s speech for new signals regarding future monetary policy and the interest rate path.

Preliminary July Manufacturing And Services Sector PMIs

On Monday, the preliminary July S&P Global manufacturing and services sector PMI data will provide signals about the state of economic activity.

In June, the manufacturing PMI declined from 48.4 to 46.3, indicating an increased contraction in the manufacturing sector. The services PMI also slightly declined from 54.9 to 54.4, suggesting a mild slowdown in the services sector growth, which has been in the growth zone for the past five months.

According to the preliminary data for July, the manufacturing PMI is expected to decrease slightly from 46.3 to 46, indicating a slight increase in the contraction pace in the manufacturing sector, while the services PMI is expected to decline slightly from 54.4 to 54, indicating a mild slowdown in the services sector’s growth.

Advance Estimate For Q2 GDP Growth

On Thursday, the advance estimate of GDP growth for the second quarter of this year will be released.

In the US, the annualized quarterly GDP growth rate for the first quarter was revised upward from 1.3% to 2%, while expectations were at 1.4%. Looking at the details, consumption expenditures and net exports were revised upward, but non-residential fixed investments and federal government expenditures were revised downward. The annualized quarterly GDP growth rate for the second quarter is expected to slow down from 2% to 1.7% due to the impact of tightening financial conditions caused by the Fed’s interest rate hikes.

Preliminary PCE Price Indices For Q2

Moreover, on Thursday, the preliminary data for the annualized quarterly personal consumption expenditures (PCE) price indices, including the core index, for the second quarter of this year will be announced. In the first quarter, the annualized quarterly PCE price index was slightly revised downward from 4.2% to 4.1%, while the core PCE price index was also slightly revised downward from 5% to 4.9%.

On Friday, the PCE deflator (including the core) for June, which the Fed pays close attention to regarding monthly price developments, along with the personal income and spending data for June, will be followed.

Projections For The PCE Deflator Data In June

As for the headline CPI announced earlier for June, the monthly increase rate accelerated from 0.1% to 0.2%, which was below expectations of 0.3%, and the annual rate declined from 4% to 3%, maintaining its lowest level since March 2021, with expectations for a decline to 3.1%.

The core CPI, which excludes food and energy prices, slowed down more than expected in June, with the monthly increase rate decreasing from 0.4% to 0.2%, and the annual rate declining from 5.3% to 4.8%, reaching its lowest level since October 2021. Expectations were for a decline to 5%.

In June, it is expected that the PCE deflator will maintain its monthly increase rate at 0.1%, but the annual rate will decline from 3.8% to 2.9%. The core PCE deflator’s monthly increase rate is expected to slow down from 0.3% to 0.2%, and the annual rate is expected to decrease from 4.6% to 4.2%.

As for personal income, it is expected to accelerate from a monthly increase rate of 0.4% to 0.5% in June, while personal spending is expected to increase from 0.1% to 0.4%.

Steady Growth In Durable Goods Orders

Additionally, the advance data for June durable goods orders will be followed on Thursday. Durable goods orders increased by 1.8% on a monthly basis in May, marking the third consecutive month of increase. The advance data suggests that durable goods orders are expected to continue their upward trend with a monthly increase of 0.7% in June.

Recent Data Shows A Surprising Decrease In Jobless Claims

Furthermore, the weekly initial jobless claims data will be monitored on Thursday. The last reported weekly initial jobless claims unexpectedly decreased from 237,000 to 228,000, reaching its lowest level in the past two months and remaining well below historical averages, indicating a tight labor market.

The Conference Board and Michigan University Consumer Confidence Indices

On Tuesday, the Conference Board Consumer Confidence Index for July and the final data for the Michigan University Consumer Confidence Index for July on Friday will be followed. The Conference Board’s consumer confidence index for June increased from 102.5 to 109.7, exceeding expectations, and reaching the highest level since January 2022. The preliminary data for the Michigan University consumer confidence index for July increased from 64.4 to 72.6, significantly surpassing expectations, and reaching the highest level since September 2021.

The Conference Board’s consumer confidence index for July is expected to increase to 111 while the data for the Michigan University consumer confidence index for July is expected to remain unchanged at 72.6.

Monitoring June’s Home Sales Data

Finally, data on new home sales for June on Wednesday and pending home sales for June, which represents sales contracts signed but not yet closed, on Thursday will be monitored. New home sales in May increased by a monthly 12.2%, marking the third consecutive month of increase. However, pending home sales decreased by 2.7% in May, extending its decline for the third month. In June, it is expected that new home sales will decrease by 4% on a monthly basis, while pending home sales will decline by 0.6%.

ECB Interest Rate Decision and Lagarde’s Speech

The agenda for this week in European markets includes the European Central Bank’s (ECB) interest rate decision and ECB President Lagarde’s speech on Thursday.

Last month, the ECB raised interest rates by 25 basis points in line with expectations and signaled further rate increases. The markets are almost certain that the ECB will raise interest rates by 25 basis points in this week’s meeting.

Preliminary July PMI Data

On Monday, the preliminary July PMI data for the manufacturing and services sectors, as measured by HCOB, will provide information about the current economic outlook in the region. In June, the manufacturing PMIs remained in the contraction zone below the 50 threshold, indicating a continued contraction in the manufacturing sector. Similarly, services PMIs also showed a slowdown in growth for most countries except France. The preliminary data for July suggests that manufacturing PMIs will likely remain in the contraction zone, while services PMIs are expected to indicate growth in all countries except France.

Business Conditions In Germany

On Tuesday, the IFO Business Climate Index for July will be released, reflecting the evaluations of firms in manufacturing, construction, wholesale, and retail trade sectors in Germany about the current and future business conditions for the next six months. In June, the IFO Business Climate Index declined to 88.5, indicating a drop in business sentiment due to the impact of rising global interest rates and a slowdown in China’s demand. It is expected that the index will continue to decline to 88 in July.

Eurozone Consumer Confidence

Regarding consumer confidence indicators, the final data for July’s Eurozone Consumer Confidence and August’s GfK Consumer Confidence for Germany will be released on Friday and Thursday, respectively.

The preliminary data for Eurozone Consumer Confidence showed a partial recovery from -16.1 to -15.1, the highest level since February 2022. However, negative sentiment persisted due to the anticipated impact of continued ECB rate increases.

In Germany, the GfK Consumer Confidence Index declined slightly from -24.4 to -25.4, ending eight consecutive months of recovery. It is expected that consumer confidence will continue to be weak in both the Eurozone and Germany due to the impact of ECB’s rate increases.

Preliminary CPI: Crucial Inflation Data Shaping ECB’s Monetary Policy

The inflation data will also be crucial in shaping the ECB’s monetary policy. On Friday, the preliminary Consumer Price Index (CPI) data for July will be released in Germany. In June, the headline CPI increased by 0.3% on a monthly basis, and the annual rate rose to 6.4%. It is expected that in July, the monthly increase in the headline CPI will remain at 0.3%, and the annual rate will slightly decline to 6.2%.

Preliminary GDP Growth Data For France

On Friday, the preliminary GDP growth data for the second quarter of this year will be released for France. The French economy recorded a growth of 0.2% in the first quarter after stagnation at 0% in the last quarter of last year. It is expected that the growth rate in the second quarter will slow down to 0.1%.

BOJ Interest Rate Decision

In Asian markets, the focus will be on the Bank of Japan (BOJ) interest rate decision on Friday.

In the previous meeting, the BOJ maintained its policy rate at -0.10% and the 10-year bond yield target at around 0%.

The BOJ is expected to continue its ultra-loose monetary policy. The BOJ Governor Ueda indicated that the bank will not abandon monetary easing as long as inflation remains below the 2% target. The market expects the BOJ to keep its policy rate unchanged in this week’s meeting.

Last week the Central Bank of Russia surprised the markets last month by raising its policy rate by 100 basis points to 8.50%, higher than the expected 50 basis points increase.