This week, the interest rate decision of the Federal Reserve (Fed) dominates market activity. Fed Chairman Jerome Powell will communicate the central bank decision on Wednesday. Financial markets currently expect a rate hike of +75 basis points. However, there is also speculation about a massive rate hike of +100 basis points after inflation climbed to a record high of 9.1% in June. Furthermore, second-quarter gross domestic product data is due on Thursday.
In addition, investors are expecting a busy week of earnings ahead that will include reports from tech giants Alphabet, Amazon, Apple and Microsoft. As of Friday, about 20% of companies in the S&P 500 reported earnings. Of those, nearly 70% beat analysts’ expectations, according to FactSet.
The Asian markets have started the new week with losses. The Nikkei loses -0.8% in Tokyo. In Hong Kong, the Hang Seng also loses -0.8% and the Shanghai Composite gives -0.7%.
The rally on Wall Street took a breather on Friday after the unexpectedly poor purchasing managers' index for the service sector weighed on sentiment. The barometer fell to 47.5 points in July, signaling a decline in activity. The tailwinds from pent-up demand have faded in the face of rising living costs, higher interest rates and an increasingly gloomy economic outlook, said economists at S&P Global, which is compiling the survey.
The Nasdaq Composite was hit particularly hard, falling -1.9%. The index suffered from a sell-off in Snap shares, which plunged nearly -40% after reporting worse-than-expected quarterly earnings. The S&P 500 slipped -1% and the Dow Jones lost -0.4%.
The Purchasing Managers' Index for manufacturing in the eurozone deteriorated significantly in July and is now signaling a decline in industrial activity. The barometer, which is collected by S&P Global, fell to 46.1 points from 49.3 in June. This puts the key leading indicator at its lowest level in more than two years and well below the threshold of 50, indicating an economic downturn. Sentiment in the service sector has also deteriorated, although the index still signals slight growth at 51 points. The overall index fell by -2.6 points to 49.5 points compared with the previous month.
Chris Williamson, chief economist at S&P Global, forecasts a slight decline in economic output in the euro area for the summer quarter. “Although the decline is modest at this stage, the sharp fall in new orders, declining order backlogs and deteriorating business outlook suggest that the downward trend will accelerate further over the summer,” he said.
The weak leading indicators also weighed on the euro. The common currency fell again below USD 1.02 on Friday. The common currency also initially traded clearly weaker against the Swiss franc, falling to CHF 0.98095. Throughout the day, the euro recovered somewhat, but remained below CHF 0.99.
|10:00||GE||Ifo business sentiment index (July)||85.8|
|CH||Kühne + Nagel||Q2|
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Source: LGT Bank (Switzerland) Ltd.
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