A look at the day ahead in U.S. and global markets from Mike Dolan
Another worrying drop in European business activity and a fresh property sector jolt in China encourages speculation the world's two most powerful central banks may end interest rate tightening campaigns this week with their final hikes of the cycle.
In a week packed with market-moving events - G3 central bank decisions, mega-cap tech earnings, a Chinese Politburo meeting and second-quarter U.S. output numbers - the prospect of peak U.S. and euro zone interest rates will loom large.
Futures markets assume the Federal Reserve's expected quarter-point hike to 5.25-5.50% on Wednesday will be its last of a 16-month squeeze, with less than a 50% chance of a further move later in the year priced.
And money markets also see the European Central Bank's likely quarter point rate rise to 3.75% the following day as the last, again placing less than a 50-50 chance of another hike after that. The Bank of Japan is expected to hold the line on its super-easy money policy for now.
Arguments for calling a halt to the credit tightening were strengthened on Monday as early July business surveys for the euro area came in well below forecasts, showing a deepening contraction in overall activity this month. The euro dropped more than half a percent against the dollar as euro government debt yields fell back, with an indecisive weekend election result in Spain adding pressure.
With the ongoing slide in manufacturing still the biggest drag and due in large part to China's spluttering post-Covid recovery, further turbulence in China's property markets will only increase the anxiety.
Hong Kong's benchmark Hang Seng index, down more than 5% for the year so far, dropped another 2% on Monday and its index of mainland property developers plunged 6.4% - its second biggest daily drop of 2023. Debt repayment concerns at two of the country's biggest developers - Country Garden and Dalian Wanda - deepened a crisis of confidence in the sector.
China's ruling Politburo met on Monday to shape its strategy for the year ahead and early local media readouts said it expects the economic recovery to be 'tortuous' requiring macro adjustments of a precise and forceful manner. Markets have worried that any stimulus to the flagging economy to date have largely been piecemeal moves.
Hopes the BOJ stands pat on monetary policy helped Japan's Nikkei outperform and it jumped more than 1%.
For Wall St, the looming Fed decision dominates this week - with a check on U.S. July business surveys topping the data on Monday's calendar in another huge corporate earnings week.
Tech giants Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report on Tuesday and Meta is due out Wednesday, with massive 70%-plus share price gains so far this year for the mega cap tech vanguard index raising the bar and investors keen to hold AI-related excitement up to the light.
Wall St's main stock indices ended marginally higher on Friday, with the Dow Jones bluechip index eking out its 10th consecutive daily gain for the first time in more than six years. Both S&P500 and Nasdaq futures pushed higher again on Monday, although the VIX volatility gauge popped to its highest in almost two weeks.
U.S. Treasury yields fell back, but the dollar climbed against the euro, yuan and sterling - also hit by disappointing UK business readings for July.
Events to watch for on Monday:
* S&P Global (NYSE:SPGI) July flash business surveys from the United States and around the world, Chicago Fed June business survey
* U.S. corporate earnings: Whirlpool (NYSE:WHR), Domino's Pizza (NYSE:DPZ), Brown & Brown (NYSE:BRO), Alexandria Real Estate, NXP (NASDAQ:NXPI), Packaging (NYSE:PKG) Corp of America, F5, Cadence Design (NASDAQ:CDNS) Systems
* World Trade Organization general council meets in Geneva
* U.S. Treasury auctions 2-year notes, 3- and 6-month bills
(By Mike Dolan, editing by XXXX mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)