Monday saw Asian stocks ready themselves for an eventful week, filled with potential shifts in global financial policy and a slew of corporate earnings. Analysts expect the United States and Europe to increase interest rates, which might signal the culmination of their monetary tightening phases.
Date: July 24, 2023
Place: New Delhi, India
Investors are set for quarter-point increases by both the U.S. Federal Reserve and the European Central Bank. The emphasis will be on future indications given by Fed Chair Jerome Powell and ECB President Christine Lagarde.
“Analysts predict this will be the last increase in the cycle for both. However, neither Lagarde nor Powell is expected to confirm a peak, as they will likely maintain a hawkish stance, continuing to rely on data,” stated NatWest Markets analyst John Briggs.
“Given the noticeable softening of activity and inflation data in both regions, which is predicted to continue, the end of the tightening cycle can be justified.”
The exception to this pattern is the Bank of Japan, which will likely sustain its ultra-easy policy when it meets on Friday. Despite this, some Western banks are suggesting a potential adjustment in their yield curve control approach.
A report by Reuters last week suggested BOJ policymakers are holding out for more data to guarantee a continued rise in wages and inflation before shifting policy. The decision, however, might be a close one. The report contributed to a 1.1% early gain for Japan’s Nikkei and left the MSCI’s broadest index of Asia-Pacific shares outside Japan almost unchanged.
China’s Politburo could announce more stimulus this week, although so far investors have shown little excitement for Beijing’s measures. Chinese blue-chip stocks saw a marginal 0.2% dip, and property developer Country Garden’s shares slid due to debt worries.
Amid this financial landscape, a series of companies, including Alphabet, Meta, Intel, Microsoft, GE, AT&T, Boeing, Exxon Mobil, McDonald’s, Coca-Cola, Ford, and GM, are set to announce their earnings this week.
“To justify the S&P 500’s 20x earnings multiple and its year-to-date gains of 19%, these results will have to impress,” said analysts at Goldman Sachs.
“We see the recent valuation growth despite higher rates as rational, considering the long-term relationship between rates and equities, the expected growth improvement, and the market concentration in stocks benefiting from AI optimism.”
Meanwhile, the U.S. dollar slightly eased to 141.37 yen after a 1.3% rise on Friday following the BOJ report. This affected the euro, which fell to $1.1123, down from its recent high of $1.1276.
In other news, the unresolved election in Spain didn’t significantly affect the markets, although Spanish debt could face pressure as local markets open.
The increase in the dollar led to gold falling back to $1,961 an ounce, deviating from last week’s high of $1,987.
Early Monday saw a slight downturn in oil prices after four consecutive weeks of increases due to tightening supplies. Brent fell by 43 cents to $80.64 a barrel, and U.S. crude decreased by 42 cents to $76.65.
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Sources- Reuters, The Print, Money Control
