This week’s main risk events will come from company Q2 earnings, the ECB meeting and PMI data. However, the central bank meeting could be relatively quiet as the ECB will very likely remain patient and sit on its hands regarding another rate cut. With the next potential EU-US tariff escalation not expected until the start of next month, there’s little reason for more ECB policy easing. Rate setters only act on measures once they’re set in stone and in effect, not when they’re announced. Meanwhile, strength in the euro has eased slightly in July, which also justifies an on-hold meeting.
The most important data will be the purchasing managers indices that reveal global evidence on growth momentum, supply chain pressures, hiring appetite and inflation risk. Australia and Japan will kick off the readings, followed by France, Germany, the Eurozone metrics, the UK and US. Composite PMIs for every one of these regions are signalling modest growth. Otherwise, it is quiet on the US data front, with the dollar rallying for a second week, something we haven’t seen in two months. But confidence in low and stable US inflation is eroding due to the ongoing Trump attacks on the Fed’s Powell. That is not positive for the greenbacks’ longer-term outlook. The 50-day SMA has capped the upside recently, as it did in May and June.
The Q2 US earnings season broadens out this week with 104 S&P500 firms’ releases over the coming week and the names diversify beyond the usual early focus upon financials. Positive surprises are encouraging so far and have boosted risk sentiment. Some of the ‘Magnificent 7’ will lead the way with results from Tesla and Google’s parent, Alphabet, although admittedly some are recently more magnificent than others. As a group, they’re back to outperforming the broader market that has returned toward performance being highly concentrated in a handful of names. Recent record highs in the major indices look like being broken on a technical basis.