News & Analysis

Week Ahead – US Earnings and GDP

July 22, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

 

Week Ahead

We expect the attention at the start of the week to be on the outcome of the election in Japan. The focus will also be on central banks – both in the developed and emerging markets while the US GDP figure will be the highlight on the economic front.

Japan’s Election 

Prime Minister Shinzo Abe’s ruling coalition declared victory in the upper house election but failed to retain the two-thirds majority to achieve his long-held hope in revising the Constitution.  

“I believe the people chose political stability, urging us to pursue our policies and carry out diplomacy to protect Japan’s national interests,” Mr Abe said.

Amid the slowing economy, Shinzo Abe, who is on track to become the nation’s longest-serving Prime Minister will be able to proceed with the consumption tax hike and other related economic measures to boost its economy. However, it appears that the nation remains divided on the constitutional reforms and his conservative policies.

Despite a low turnout and controversial constitutional reforms, the solid majority win shows that the Japanese population want to maintain political stability in the face of a slowing economy and bearish global factors such as trade tensions. 

US earnings

It will be another busy week on the earnings front, which will keep market participants busy. Attention will be on the FAANG Group with Facebook, Amazon and Google reporting on Thursday. We expect the stock market to be quite volatile towards the end of the week with major companies issuing their quarterly earnings expectations. 

Wednesday: Snap, Caterpillar, Boeing, Vista, and Alibaba.

Thursday: Advanced Micro Devices, Facebook, Inter Corp, Amazon and Tesla Inc, Google (Alphabet)

Friday: Twitter   

Central Banks

European Central Bank (ECB) 

With the global run towards easing policies, investors will closely monitor the clues coming from the ECB. We note that President Mario Draghi shed some dovish comments in June, and says the central bank is ready to use all its tools to stimulate growth in the Eurozone amid the lack of improvement in the economic data.

In the July meeting, we expect the ECB to provide guidance or signals of a rate cut in the September meeting before Christine Lagarde take office as the new ECB President in November.

At this stage, the market has already factored-in the appointment of Christina Lagarde as a no game-changer for the markets. In the short-term, investors do not expect any material changes in monetary policies.

However, her lack of experience in central banking makes it challenging to foresee her stance on monetary policy in the long run, which will remain some sort of uncertainty for the markets. 

Turkey and Russia 

After a few rate cuts in the emerging markets last week, the focus will switch to Turkey and Russia. Central banks of both countries are expected to cut interest rates. The new governor of Turkey’s central bank, Murat Uysal will have its first board meeting since his appointment, and his recent dovish comments reinforced expectations of at least a 2% rate cut from 24% to 22%.

The central bank of Russia is also expected to deliver its interest rate decision on Friday. The market has more or less priced-in a 25bps rate cut from 7.50% to 7.25% as the recent muted inflation data and weakness in demand has brought forward the rate cut initially anticipated for September.

US GDP

On the economic front, the first estimate of Gross Domestic Product (GDP) for the second quarter, which is scheduled to be released on Friday will be the highlight of the week.

The market is predicting a slowdown from 3.1% to 1.9%. The Q2 GDP data will help investors to assess the effect of trade tensions on the US economy.

Tuesday, 23 July 2019
Indicative Index Dividends
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