Last week, the US stock market first suppressed and then rose, while technology stocks plummeted after Tesla and Google's financial reports were released, causing the panic index, which measures market volatility, to reach a new high in nearly three months. As the PCE inflation index falls as expected, market concerns have eased to some extent.
Looking ahead to this week, overseas markets still face many challenges, and whether the latest inflation data can gain more recognition from the Federal Reserve, thus laying the groundwork for the September interest rate cut, has attracted attention. The Bank of Japan and the Bank of England will also announce their interest rate decisions. Recently, both the Japanese yen and the Japanese stock market have been the focus of investors' attention, and the market is full of divisions regarding the possibility of the Bank of Japan raising interest rates.
In addition, Microsoft, Apple, Amazon, and Meta will each release their financial reports this week, and the performance of these companies may further test investors' tolerance for potential profit shortfalls in tech giants. The strong rebound of major global technology companies this year has boosted the market, but also raised concerns about overvaluation.
Weekly outlook: The path for the Federal Reserve to cut interest rates is becoming clearer
Bank of Japan raises interest rate suspense again
The Federal Reserve will announce its interest rate decision on Thursday morning, August 1st Beijing time. Due to the June CPI data meeting expectations but exceeding targets, it turned negative for the first time in four years, providing support for interest rate cuts this year. At present, the market generally expects interest rates to remain unchanged, but it may pave the way for a rate cut in September. At the same time, several senior Federal Reserve officials have recently hinted that a rate cut is imminent to balance economic growth, price stability, and labor market health.
The pricing of the Chicago Mercantile Exchange's FedWatch tool shows that the probability of the Federal Reserve cutting interest rates in September has remained at a high level of 90% for nearly a week, and the expectation of two interest rate cuts this year has not changed. Morgan Stanley expects that Federal Reserve Chairman Powell will hint at signs of an imminent relaxation of monetary policy at the interest rate meeting. Powell previously stated in the US Congress that policymakers should not wait for inflation to drop to 2% before cutting interest rates, while Federal Reserve Governor Waller hinted that the central bank is getting closer to easing policy as inflation eases.
The Bank of Japan will announce its July interest rate decision at noon on July 31st Beijing time, and the market expects interest rates to remain unchanged. Recently, the strengthening of the yen has led to speculation in the market that the Bank of Japan may postpone interest rate hikes, but there are also strong calls for tightening policies to address high inflation and possible yen depreciation.
And last week, the Bank of Japan hinted that it would announce a reduction in bond purchases at its meeting, as well as release quarterly forecasts for prices and economic growth. David Scutt, senior strategist of Jiasheng Group, predicted that the Bank of Japan would announce its plan to reduce the purchase of Japanese treasury bond (JGB) in the next one to two years. The Bank of Japan will reduce monthly JGB purchases by 500 billion yen every quarter, while emphasizing flexibility and predictability to avoid sharp increases in yields. In this scenario, by the end of 2025, the monthly purchasing volume of the Bank of Japan will decrease to 3 trillion yen, and JGB holdings will decrease by 5%. The share of the Bank of Japan in the outstanding JGB will decrease from 48% to 44%.
On the evening of August 1st Beijing time, the Bank of England will announce its interest rate decision. Wall Street generally expects the Bank of England to announce its first interest rate cut in four years, with a rate cut of 25 basis points.
US tech giants face financial report test again
In addition, this week technology giants will once again attract investors' attention, with Microsoft, Meta, Apple, and Amazon announcing their second quarter financial reports. As the earnings season deepens next week, several tech giants including AMD, Qualcomm, ARM, and Intel will also gradually disclose their performance.
Last week, following the market turbulence caused by Tesla and Google's financial reports, investors were particularly concerned about whether Microsoft's financial report released on Tuesday could revive market confidence with its outstanding performance in cloud computing and AI fields.
Meta will also release its second quarter financial report on Wednesday, with market expectations for a significant increase in revenue and earnings per share, with a focus on user growth, strong demand in the advertising market, capital expenditures, and progress in its AI business. Meanwhile, Meta is facing potential high fines from the European Union, and investors are looking forward to an official response during the conference call.
The financial report released by Apple on Thursday cannot be ignored, especially the sales of iPhone in China and the progress of AI strategy, which will directly affect its stock price trend. The market generally believes that although the recent strong rebound of technology stocks has boosted the market, but also accompanied by the risk of valuation foam, this financial reporting season may further test the patience and judgment of investors.
