Traders are feeling nervous as the financial world prepares for a week loaded with major economic indicators. They’re watching just as closely for political or policy developments that would affect those markets. On Tuesday, the Reserve Bank of Australia (RBA) will publish minutes from its last policy meeting. Then to cap off the week on Friday, Japan will release its first look at July Tokyo Consumer Price Index (CPI) data. In the United States, a trio of economic reports will offer a glimpse at the health of the world’s largest economy. Those reports range from Purchasing Managers’ Index (PMI) data, existing home sales, and new home sales.
U.S. President Donald Trump is in the news again. Through it all, he’s persistently lashed out at Federal Reserve Chair Jerome Powell. Trump has long urged Powell to cut rates. He’s gone so far as to discuss among other Republicans plans for them to remove him from office themselves. Yet all of these political dynamics will provide a significant backdrop to what will happen with the money this week—and beyond.
RBA Minutes and Economic Indicators
On Tuesday, the RBA will release the minutes of that last monetary policy decision. Traders are intensely focused on this release for more granular clues as to what is driving the Central Bank’s decisions. This expectation comes after the Bank of Japan’s last 25 bps cut, bringing the general deposit rate down to 2.0%. Observers are likely to be looking for more information regarding the economic conditions, which have shaped the RBA’s outlook provided in the minutes.
Further complicating matters later in the week will be the release of Japan’s Tokyo CPIs for July, due during the Asian session on Friday. This data is vital for gauging inflation trends in one of the world’s largest economies. As inflation rates are the world’s most closely watched indicators, Japan’s figures would be particularly important in shaping global market perceptions and trading strategies.
In the United States, Thursday brings preliminary S&P Global PMIs for July. These indices are critical to monitoring the health and growth of the manufacturing and services sectors. In fact, they provide a pretty simple and straightforward snapshot of the entire economic shebang. Along with the PMIs, we will get another snapshot of the world’s largest economy. In recent years, this new economy has shown extreme vulnerability.
Earnings Forecasts and Market Reactions
Against this backdrop of economic indicators, all eyes will be on short-quarter, early-releasing corporate earnings reports. The earnings-per-share (EPS) rate for S&P 500 large-cap companies is projected to fall to $2.18 down from $2.27 in last quarter. The bad news is that projections for revenue continue to grow, from $90.2 billion to $93.9 billion.
This mixed earnings outlook is important because it is a further reflection of underlying realities of corporate profitability against a changing economic backdrop. Investors will be looking underneath these results. They’re particularly interested in how firms are managing through changing consumer demand and inflationary challenge.
Moreover, revenue growth measured year-over-year is expected to fall to 10.85% from 12.04%. This slowdown should lead investors to be concerned with the company’s long-term growth prospects. In terms of the path forward, this could lead to greater turbulence in stock prices.
Political Developments Surrounding Interest Rates
The political landscape in the U.S. continues to intertwine with economic forecasts as President Trump openly criticizes Powell’s approach to interest rates. Over the past few weeks, Trump has doubled down on his insistence that the resulting rates be lower, proclaiming that these type of policies will supercharge economic growth. He has been very vocal about wanting to see Powell fired with other Republicans behind the scenes. He admits that it’s extremely unlikely that he’ll follow through to take that step.
When Powell speaks to attendees on Tuesday, it will be at a conference created and run by the Federal Reserve itself. His remarks are expected to clarify the Fed’s stance on monetary policy and may influence market expectations regarding future interest rate adjustments. Investors will be listening intently for any sign of when the first rate cut might come or indication that the policy direction is turning.
Powell’s speech looms large on the horizon. Other than the retail sales, Wednesday we’ll get the June existing home sales data, with new home sales coming the following Thursday. These reports are crucial gauges of the overall housing market’s health and can influence consumer confidence and consumer spending.