Home Credit inquiry GRAPHIC-Take Five: It’s a Hot Fed Summer

GRAPHIC-Take Five: It’s a Hot Fed Summer

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Rrepeat story posted on Friday, no text changes

22nd of JulyA likely second consecutive 75 basis point rate hike by the US Federal Reserve will keep markets on their toes in the week ahead, just as investors digest a flurry of US and European corporate earnings.

The prospect of a snap election in Italy after the collapse of the government means there is also plenty of political drama, and the latest inflation figures in Australia could add pressure on the country’s central bank to ahead of the curve.

Here’s to your week ahead in the markets of Ira Iosebashvili in New York, Kevin Buckland in Tokyo, and Sujata Rao, Dhara Ranasinghe and Vincent Flasseur in London.

1/ HOT FEED

Fed officials poured cold water on expectations of a 100 basis point rate hike in July, but Wednesday’s meeting will still have plenty of drama.

A 75 basis point interest rate hike is priced in, and on top of the 150 basis points of tightening so far in this cycle, this is sure to bite consumers and businesses alike.

Investors will be looking to see if the Fed thinks inflation is peaking and how it views the US economy as they try to gauge the scope for a rate move in September.

In the balance are the nascent rallies in US stocks and bonds. The S&P 500 is up nearly 10% from its mid-June low .SPX10-year Treasury yields are down 60 basis points US10YT=RR.

2/ WINNINGS: PART I

Earnings from Alphabet, parent of Google, Microsoft, Coca Cola, Apple and others will show how American businesses are coping with runaway inflation and a strong dollar.

The 17% decline in the S&P 500 this year has lowered the index’s forward price-to-earnings ratio to around 17.3 from 21.7 at the start of 2022, closer to the historical market average of 15.5, according to Refinitiv Datastream. .

While there have been several notable beats this season, it’s only the beginning and many fear earnings estimates won’t hold up in the face of the highest inflation in four decades and tightening financial conditions.

The soaring dollar is also complicating the situation, making US exports less competitive and hurting businesses that make much of their money overseas. Alphabet, Microsoft and Coca Cola report on July 26, Apple and Amazon on July 28.

3/ WINNINGS: PART II

One-sixth of Europe’s STOXX 600 stock index reports second-quarter results July 25-29, and Refinitiv I/B/E/S expects earnings to be up 22% year-over-year.

This overall figure hides disparities; earnings growth for energy companies taking advantage of the oil glow at $100 a barrel is estimated at 185%, while real estate companies will post a 70% decline, Refinitiv predicts.

Statements from retailers, heavy industry and hospitality companies can show how painful energy shortages and high inflation are. Companies like Airbus, Volkswagen and Mercedes will shed light on the situation of European exporters.

Bank profits, which are expected to have slowed by around 16%, include figures from UBS, Credit Suisse, Deutsche, Barclays and BNP Paribas.

The second-quarter season will show whether European equities are correctly priced at around 11.5 times forward earnings, relative to their long-term average of 14%, or whether they need to fall further.

4/ MAMA MIA

A political crisis could not have come at a worse time for Italy. The ECB has just raised its rates for the first time since 2011, inflation is soaring and the country is being hit hard by its exposure to Russian gas.

The collapse of Mario Draghi’s government ends months of stability, unnerving markets that cheered when the former ECB chief became prime minister in 2021. They are now worried about the prospect of new elections and Rome’s ability to enact policies.

It also leaves the ECB, with its new tool to contain bond market tensions, in a tricky position to determine what part of the widening in government bond spreads is “unwarranted” – or give up buying altogether. Italian bonds.

5/ ISSUE OF CREDIBILITY

Reserve Bank of Australia (RBA) boss Philip Lowe pledges a steady campaign of policy tightening to at least double interest rates from current levels to ‘chart a credible path’ towards the RBA’s 2-3% inflation target.

Quarterly inflation figures due on Wednesday could show a further acceleration in price growth, which at 5.1% is already at its highest level in two decades.

The promises of rate hikes are ironic coming from Lowe, who just months ago pushed back on markets, saying he hadn’t seen rates rise throughout 2022 but has since raised them three times. since May.

Criticism of the RBA’s inflation policy led to an independent investigation into its operations.

The Fed is expected to raise its rate by 75 basis pointshttps://tmsnrt.rs/3cvRuYl

STOXX 600 earnings growth by sector STOXX 600 earnings growth by sectorhttps://tmsnrt.rs/3PoX5OX

S&P 500 earnings growth by sector S&P 500 earnings growth by sectorhttps://tmsnrt.rs/3zmjgiZ

Political crisis weighs on Italian bond spread Political crisis weighs on Italian bond spreadhttps://tmsnrt.rs/3PpaAyd

RBA seeks path back to inflation target RBA seeks path back to inflation targethttps://tmsnrt.rs/3RQ3PqJ

(Compiled by Dhara Ranasinghe; Graphics by Vincent Flasseur; Editing by Gareth Jones)

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