Stock Market - The Week Ahead

Inflation Data

The market's anticipation that the Federal Reserve would almost definitely lower interest rates in September will be put to the test by U.S. inflation statistics on Friday.

The personal consumption expenditures (PCE) price index is predicted by economists to have increased by 0.1% in June for the second consecutive month. This would lower three-month annualised core inflation to the lowest level of the year and fall short of the Federal Reserve's 2% objective.

For the first time in four years, the consumer price index declined in June. The market's views that the Fed will drop rates in September were solidified by that less-than-expected news, which also caused stocks to rotate.

Big Tech Earnings

Bullish investors anticipate that strong corporate results will halt the decline in technology shares that has slowed this year's U.S. market surge as earnings season picks up steam.

The technology sector of the S&P 500 has fallen by over 6% in less than a week as investors shift their money from this year's winners to industries that have underperformed in 2024 due to increased forecasts of interest rate cuts and a second Trump presidency.

Second-quarter results may contribute to tech's comeback to prominence. Tuesday marks reports from Alphabet and Tesla.

Eurozone

Price pressures have remained uncomfortably high due to the strength of the dominant services sector, which has been bolstered by tourism, even if economic growth in the eurozone is still slow.

The ECB has found this difficult, so Wednesday's PMI data will be carefully examined. Last Thursday, the central bank held interest rates at 3.75% and refrained from providing any further advice, citing "data-dependent" reasons.

The European Central Bank (ECB), which reduced borrowing prices in June for the first time in five years, does believe that inflation is slowing down.

The euro, government bonds, and equities in the euro zone are now supported by the markets' solid pricing of a September rate drop. However, this also raises the threat level of any PMI report that may change the ECB's perspective.

Banks in Europe

As the second-quarter results season gets underway this week, the European banking industry, which has been enjoying a run of growing profits and share prices, is in for a rude awakening.

Net interest income, which increased as a result of rate increases, is crucial to the forecast. But with the ECB indicating more rate cuts and the Bank of England getting ready to loosen monetary policy, the celebration could not last long.

As political unrest grows, investors will also want to monitor how bankers are doing; after the most recent elections, French bank shares dropped precipitously.

Major lenders like Deutsche Bank, Lloyds, BNP Paribas, Banco Santander, and UniCredit will release their earnings reports on Wednesday.

(Sources: investing.com, reuters.com)