July 5 (Reuters) – The United States will capture the market’s attention next week when Federal Reserve Chairman Jerome Powell addresses the U.S. Congress on Tuesday, ahead of the release of a key inflation figure and results from U.S. banks.
The French legislative election could also prompt markets to react, while the positioning of the Korean and New Zealand central banks continues to raise questions and the new UK government will face its first major economic decision.
Summary of the market outlook for the coming days:
1/ AMERICAN INFLATION
CPI inflation for June in the US will be published on Thursday and will help investors fine-tune their interest rate expectations for the rest of the year.
Consensus is betting on an increase of 0.1% over a month in June, with inflation having been stable in May.
The latest PCE inflation number, the Fed’s preferred gauge, rose 2.6% year-on-year in May, indicating that price momentum continues to ease but remains above Fed inflation, 2%.
Jerome Powell will address the US Congress on Tuesday and could repeat his remarks from recent days at the Sintra forum. The Fed president estimated that the US had returned to “the path to disinflation” but that policymakers needed more data before cutting interest rates.
2/ BANKS IN THE PLACES OF SIGHT
High interest rates and the uncertain economic environment are giving rise to fears that US banks’ second-quarter results, expected from Friday, will be worse than expected.
JPMorgan Chase, Citigroup and Wells Fargo release their numbers on July 12, while Bank of America releases its numbers on July 16.
The LSEG consensus calls for earnings per share of $4.69 for JPMorgan, the largest of those banks, up from $4.75 a year ago. BofA’s EPS is expected to decrease from $0.88 to $0.79, while Citigroup and Wells Fargo’s EPS are expected to increase.
The comments from the heads of these banks will be closely watched, especially since they have announced an improvement in the environment for investment banking activities, according to analysts.
3/ SECOND ROUND
The result of the second round of French legislative elections will be announced on Sunday, with investors hoping for an assembly without an absolute majority.
In June, fears of an absolute majority of the National Rally or a left front, which could have led to more expensive policies, triggered strong turbulence in the markets.
Investors are nevertheless more optimistic, while the prospects for an absolute majority of RN are receding.
The yield spread between French and German 10-year sovereigns narrowed to 70 bp, after reaching the highest since 2012 at 85 bp.
However, an assembly without a clear majority is not so reassuring for investors because the risk of political paralysis could complicate the necessary consolidation of the French budget situation.
4/ TO THE ANTIPODS
Investors are looking to determine whether the central banks of New Zealand (RBNZ) and South Korea (BoK) will cut interest rates this year. Both institutions have been cautious, raising their interest rates to 15-year highs to curb inflation, which remains stubbornly high. The two central banks are expected to keep interest rates at their current levels during their next meetings, Wednesday for the RBNZ and Thursday for the BoK.
In New Zealand, monetary policymakers have even warned that a further rate hike is possible this year, with a cut not expected before the end of 2025. Markets are betting on a rate cut this year, possibly in October, as inflation slows, economic sentiment worsens and domestic demand erodes.
South Korean inflation appears to be coming back under control, but consensus does not expect a decline until the fourth quarter. However, political pressure is mounting on the BoK, with President Yoon Suk Yeol estimating that interest rate cuts in line with the Fed’s will be “inevitable”.
5/ WASTEWATER
The newly elected British Labor government faces its first major economic problem on Thursday.
The water regulator, OFWAT, will today publish how much water distributors will be able to raise prices.
The UK’s biggest water distributor, Thames Water, has asked to be able to raise its prices by 59%, a request that OFWAT may not comply with. However, too low a price increase may worry investors, while Thames Water’s financial situation is critical.
The group has 16 million customers in London and its suburbs, £15bn of debt (€17.7bn) and could face nationalization if it is unable to raise new money to solve its financial problems.
(Graphics by Kripa Jayaram, Vineet Sachdev, Sumanta Sen, Pasit Kongkunakornul and Prinz Magtulis, compiled by Karin Stroheckerk, edited by Kate Entringer)
