In-depth Analysis

Weekly Outlook 25-29 July

Focus on the Fed meeting and Big tech earnings

Major indexes rose last week, mostly as a result of the restart of Russian gas exports and the ECB’s decision, despite investors’ continued concern about a global economic slowdown and a return to recession, which might cause volatility this week. However, traders remain cautious.

Investors are always closely monitoring the bond market, as they think that unless bond yields stabilize, a sustained recovery in the stock markets cannot occur. Yields decreased last week not only in the US but also in Europe, where the yield on the 10-year German Bund temporarily dipped below 1%.

Other headlines of last week:

  • Global wheat prices were very volatile last week and fell around 20% after an agreement between Russia and Ukraine was reached on wheat shipments through the Black Sea.
  • Commodity markets’ volatility has been exacerbated by supply chain difficulties and unpredictable demand due to higher worldwide recession risk. Oil prices stabilized (around the $100 mark), as well as industrial metals such as aluminum and copper.
  • Gold prices briefly fell below the $1,700 mark last week before bouncing back.
  • The ECB increased its main interest rates by 50 basis points without any real impact on the EUR with the EUR/USD around 1.0200.

Let’s now look at the most critical economic release you should monitor this week.

Monday 25th of July

Starting on Monday the 25th, only the German IFO Business Climate for the month of July is worth monitoring. Expected to continue slowing down to around 90, it assesses the present business climate in Germany and forecasts expectations for the evolution of the climate for the next six months based on a study of producers, builders, distributors, and retailers.

Most important company announcements of the day:

  • Ryanair Holdings PLC
  • Koninklijke Philips NV

Tuesday 26th of July

Continuing on Tuesday the 26th, traders will monitor the Japanese Policy Meeting Minutes for clues about the Bank of Japan’s next moves. Then, traders will wait for the American CB Consumer Confidence for the month of July and the U.S. New Homes Sales for the month of June.

The Consumer Confidence Survey® represents current business circumstances as well as probable future changes. This monthly report provides key information on consumer sentiments, purchasing intentions, vacation plans, and forecasts for inflation, stock prices, and interest rates. It helps economists and analysts predict consumer spending levels, which is a large part of U.S. growth. Markets are expecting the indices to continue falling in July to reach a new low level in more than a year.

New Home Sales are an important indicator to follow, as when more houses are sold, this supports consumption from buyers. When the economy gets worse, new home sales are often an early sign that things are going to get worse.

Most important company announcements of the day:

  • Microsoft
  • Alphabet
  • Visa
  • Coca-Cola
  • McDonald’s
  • United Parcel Service Inc

 

Microsoft

As Microsoft’s (MSFT) earnings beat expectations across the board last quarter, investors will be closely watching if the company is still doing well, and if guidance is still optimistic for the rest of the year, now that the Fed is becoming increasingly aggressive with its monetary policy. The results are critical now that the company declared last week that it would cut many open job listings as a result of the worsening economic outlook.

Wall Street analysts are expecting Microsoft to report an EPS of $2.30 per share for this quarter, which is an improvement over the previous year’s EPS of $2.17 per share. Compared to the year-ago quarter, revenues are also expected to rise to $52.47 billion from $46.15 billion.

Alphabet

Amid various macroeconomic concerns, such as rising inflation and a tightening credit environment, the tech conglomerate has suffered a slowdown in digital advertising, which is a significant part of the company’s revenues. The growth of YouTube’s ad income is another interesting topic since it fell well short of projections in the last quarter due to the rising popularity of the Chinese app TikTok.

Wall Street analysts anticipate Alphabet to earn $1.30 per share on $70.27 billion in sales. This contrasts with the same period last year when profits per share were higher at $1.36 and sales were lower at $61.88 billion.

McDonald’s

In the previous two years, the post-earnings performance of McDonald’s stock has been underwhelming. During the previous eight quarters, the average post-earnings movement for McDonald’s shares was 1.6%, regardless of the price direction. This time, the options market is pricing in a 3.7% price move.

There’s a good chance that the company’s operations were affected in the second quarter by things such as a lack of workers due to the coronavirus, delays in the supply chain, and worries about geopolitics. Also, inflation has gone up. Investors will be monitoring how these factors have had an influence on the company’s margins.

The Zacks Consensus Estimate for profits in the second quarter has been set at $2.46 per share, which represents an increase of 3.8% when compared to the $2.37 recorded in the same period a year ago. When it comes to total revenue, the general consensus estimate is $5.878 billion.

Wednesday 27th of July

The Wednesday 27th trading day starts off in Australia with inflation figures, which is a key indicator for the Reserve Bank of Australia, as inflation hit a record high in the country, and the central bank must provide financial and monetary stability. The annual Australian CPI for the second quarter of 2022 is expected to increase to 6.3% from 5.1%, while the quarterly Australian CPI for the same period is expected to slow down to 1.9% from 2.1%.

Then, the focus will be on the United States, with monthly Durable Goods Orders and  Durable Goods Orders, which are expected to respectively slow down to 0.2% and -0.5%. As durable goods orders inform investors about the manufacturing sector, an important component of the American economy, a change in the level of durable goods orders indicates changes in the economic conjuncture. A decrease in orders for durable goods usually indicates that the economy is weakening.

The most important moments of the day will be the FOMC decision on the Federal Funds Rate and the following press conference. Investors are expecting the Fed to increase its rates by 75 basis points (bps) this month and 50 bps in September, but the Fed might surprise the market with a higher-than-expected rate hike like the Australian RBA and the European ECB.

Most important company announcements of the day:

  • T-Mobile US Inc
  • Boeing
  • GlaxoSmithKline Plc
  • Rio Tinto Plc
  • Meta

Thursday 28th of July

On Thursday 28th, we’ll start the day with the monthly Australian Retail Sales for the month of June. The measure of the purchases of durable and non-durable goods by consumers is expected to slow down to 0.6% from 0.9%. Because consumer spending drives so much of the American economy, retail sales are an essential economic indicator that traders closely monitor.

Then, traders will move on to the United States with a key economic indicator, the U.S. Gross Domestic Product (GDP) QoQ for the second quarter of 2022, which is expected to improve from -1.6% to 0.4%. They will also use the American Initial Jobless Claims figures to ascertain how solid the American job market is by tracking how many people applied for unemployment benefits for the first time last week. The figure is supposed to increase from 251K to 253K.

Most important company announcements of the day:

  • Apple
  • Amazon
  • MasterCard
  • Pfizer
  • Merck & Co.
  • Intel
  • Linde Plc
  • Sanofi

Friday 29th of July

On Friday the 29th, several inflation figures will be published, such as the CPI from Japan, France, Spain, Italy, and Europe. As rampant inflation is a critical issue for the ECB, investors will be closely following how fast inflation is increasing in many different European countries. In those countries, as well as in Canada, flash and preliminary growth figures will also be published.

Inflation in the United States will also be a key figure of the day with the monthly Core PCE (Personal Consumption Expenditures), which could increase to 0.5% from 0.3%.

Most important company announcements of the day:

  • Exxon-Mobil
  • Procter & Gamble Co
  • Chevron
  • AstraZeneca Plc
  • Colgate-Palmolive

 

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.