Weekly Market Outlook: Central Banks and US Earnings. Will the BoJ Raise Rates?

By Zain Vawda

Weekly Review: Sentiment Overshadows US Results and Data

A turbulent week for global markets, full of risk, volatility and plenty of opportunity, is coming to an end. Tech stocks sell off in US megacaps accelerated earlier in the week, fueled by concerns about growth in China. The SPX and Nasdaq 100 rally on Friday was led by a rebound in technology shares, with Meta, Microsoft and Amazon leading the way.

Despite concerns about big tech stocks, U.S. equity funds saw inflows of $2.17 billion during the week, according to research from Bank of America.

Elsewhere, gold prices also rebounded towards the end of the week, falling to 2,353.10 on Thursday before trading at 2,388.25. writing. Oil prices also appear to be finding support, with Brent posting a one-week low just above the psychological $80 per barrel level.

The market moves this week have left many people stunned, and understandably so. US data for the first time this year seems to be overshadowed by other factors that have been driving markets.

The weak reaction to US GDP and PCE prints further highlights the latter. It appears that the fallout from the tech sell-off, early US election positioning and carry trade unwinds all drove the significant market moves that overshadowed the US economic data.

The question remains whether these factors will overshadow a slew of economic data due next week.

The coming week: the dominant topic will be the meetings of central banks and the NFP

US

Looking ahead to next week, there are many things happening in the world that could impact financial markets. Market participants will be paying attention to the FOMC meeting, but in the eyes of many, it is still too early to expect a rate cut.

The NFP and employment report on Friday could have a bigger impact on the U.S. dollar next week. Depending on the rhetoric of Federal Reserve Chairman Jerome Powell, the data could be a big factor in whether the Fed cuts interest rates in September as expected.

Europe + Great Britain

The eurozone will release its preliminary inflation data on Wednesday as market participants expect further cuts from the European Central Bank. A weak inflation print will reinforce the belief that more cuts are on the way and could send the euro further down.

The UK and the Bank of England (BoE) will certainly be in the spotlight next week. A BoE decision next week is too close to call, one analyst said. With the UK having outperformed expectations in 2024, there is an increasing likelihood of a rate cut next week.

The UK inflation story looks better, despite recent surprises in services. A great way to look at it is that two members of the nine-person committee have already started voting for rate cuts. Two or possibly three others have the opposite view and are clearly opposed to cuts. That leaves four or five members in the middle who seem undecided.

The June meeting indicated that some, perhaps most, of these officials felt the decision was delicately balanced. Yet since the general election was called in late May, we have heard very little from these decision-makers.

This lack of comment makes it difficult to predict Thursday’s meeting with confidence. Nevertheless, we continue to maintain our long-held baseline that a rate cut will occur in August.

Asia Pacific Markets

The most anticipated event next week is the Bank of Japan’s (BoJ) policy meeting. The reason… rumors are that the central bank will unveil a plan to halve its bond purchases and may even discuss a 15 basis point rate hike.

The news brought a lot of volatility and strength to the Japanese yen this week. The economy is back on the recovery path after an unexpected recession in the first quarter of 2024, and solid wage growth in May should bolster central bank confidence.

The key for me is wage growth, a key metric that Gov. Ueda has pushed back on since he took office. Positive wage gains, coupled with this week’s announcement of a new minimum wage ceiling, are signs that the economy may be ready for a rate hike.

Elsewhere, the Reserve Bank of Australia (RBA) and market participants will be monitoring the release of the Australian CPI. The data will play a key role in determining what steps the RBA needs to take at its upcoming meeting on 6 August.

Inflationary pressures continue to weigh on the RBA and Australian consumers, as RBA Governor Bullock recently acknowledged. The Governor appears to be backing the idea that domestic demand is too strong to allow inflation to fall at an acceptable rate. Another rise in inflation is likely to boost interest rate hike bets ahead of the RBA’s August meeting.

The US earnings season continues next week, and there are several important events on the agenda. Microsoft will report results after the market close on Tuesday, followed by Meta on Wednesday, and Apple and Amazon on Thursday. Considerable volatility could materialize, especially in the S&P 500 and Nasdaq 100.

Weekly Chart

The chart of the week that I will focus on is the Nasdaq 100. The sell-off from last week continued, pushing the Nasdaq 100 below a rising trendline and then bouncing off the 100-day moving average (MA) on Friday.

Currently, the daily candle is likely to close as a bullish engulfing candle, suggesting a potential further rebound next week. However, a retest and rejection of the trend line could lead to new lows next week, depending on earnings reports and overall market sentiment.

For the Nasdaq to reach support at 18,400 and potentially lower levels, a breakout and close of the daily candle below the 100-day MA is needed, with the 200-day MA at 17,656.

On the other hand, resistance is at the trend line and a break of this level could trigger a break of the psychological barrier at 20,000.

Nasdaq 100 Daily Chart – June 28, 2024

Key levels to consider:

Support:

Resistance:

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