Central bank meetings, US-China trade talks, UK bank earnings


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All eyes will be on the central banks this week with the much-anticipated Federal Reserve rate decision on Wednesday sitting snugly between meetings of the Bank of Japan on Tuesday and the Bank of England on Thursday. Some of the UK’s biggest banks report earnings this week, while the US season continues apace with 170 companies listed on the S&P 500 scheduled to provide updates. Among these, Apple is likely to take centre stage.

In the UK, Boris Johnson faces his first by-election as leader. Polls show the Liberal Democrats stand a good chance of taking the Brecon seat from the Conservatives, which would whittle down the government’s majority in the House of Commons to just three. In the US, TV network CNN hosts the latest debates between the candidates vying for the 2020 Democratic presidential nomination.

There’s also a busy economic calendar, with plenty of gross domestic product and inflation data from Europe and the US jobs report.

US-China trade talks

Trade talks are set to resume this week when US trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin head to Shanghai to begin negotiations on Tuesday. Vice-premier Liu He is expected to lead the talks for China.

Previous discussions collapsed in May when the US accused Beijing of backpedalling on its commitments and resulted in president Donald Trump raising levies on $200bn of Chinese imports to 25 per cent from 10 per cent, along with a threat to slap 25 per cent tariffs on a further $300bn worth of products.

Background reading

Gavyn Davies: Global policy adjusts to the surprising effects of trade wars

Central banks

Jay Powell is widely expected to announce a historic interest rate on Wednesday as an insurance policy for the US economy against a weakening global outlook and rising trade tensions.

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If the Fed chairman follows through with the move, it would be the first US rate cut since the aftermath of the financial crisis — and it would represent a remarkable reversal from the tightening cycle that Mr Powell pursued last year.

Swap contracts imply that investors have priced in a more than 80 per cent chance of a 25 basis point cut, with nearly 20 per cent likelihood of a larger cut.

This comes despite the fact that the US economy is experiencing its longest-running growth streak since at least 1854, enjoys near-record low unemployment and record-high equity markets.

Background reading

Powell prepares to launch historic interest rate cut

The Bank of England’s Monetary Policy Committee is all but certain to leave rates unchanged when it presents new forecasts for the economy on Thursday — even though it has been signalling for months that a “gradual, limited” rise in interest rates will be needed to stop inflation rising above its 2 per cent target.

Andy Haldane, the BoE’s chief economist, called attention last week to Britain’s “unusual, mid-Atlantic position” — with real interest rates as low as in the eurozone, even though its labour market looks as strong as that of the US. UK monetary policy already looked “relatively accommodative” and there was no reason to assume the BoE would move in step with its global peers, he said, adding that he would be cautious of cutting interest rates, “barring some sharp economic downturn”.

Background reading

BoE’s Andy Haldane cautions investors against counting on rate cuts

The Bank of Japan is on Tuesday expected to keep rates on hold and maintain its guidance. But exchange rates will play a key role in determining how the Japanese central bank shapes policy in the second half of the year. Markets Questions has more on this.

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Brazil’s central bank is likely to cut the Selic rate by 25 basis points when it meets on Wednesday as Latin America’s largest economy faces the threat of a new recession.

The Czech National Bank is expected to leave rates unchanged and also uphold its forward guidance for stable rates in the months ahead when it meets on Thursday.

Earnings

S&P 500 companies scheduled to report results this week include Eli Lilly, Merck, Pfizer, ConocoPhillips, Apple, General Electric, Spotify, Qualcomm, Verizon, General Motors and ExxonMobil among others.

Apple, in particular, will garner plenty of attention as investors tune in to see if iPhone sales have improved, particularly in China. The company’s services business, which has helped drive profits, will also be closely watched.

In the skies, Airbus reports on Wednesday when investors will focus on the European group’s position relative to rival Boeing — the world’s largest plane maker but one that is now in a state of crisis following the grounding of its 737 Max aeroplane after two fatal crashes.

Ryanair, Europe’s largest low-cost airline, reports as it grapples with overcapacity in Europe and expected delays to the delivery of dozens of Boeing 737 Max jets.

Some of the UK’s biggest banks will be in focus this week. Payment protection insurance claims and a competitive mortgage market are expected to factor when Lloyds Banking Group reports on Wednesday, but investors expect the bank’s focus on cost cuts to offset this somewhat.

Investors are likely to focus on the performance of the under-pressure investment bank when Barclays reports on Thursday.

On Friday Royal Bank of Scotland updates, with investors on the lookout for news on the hunt to replace chief executive Ross McEwan, who is heading off to the National Australia Bank.

Greggs reports this week. Its vegan sausage roll — the butt of many a joke — has proved to be a stroke of genius, helping the retailer to become one of the best-performing stocks in London this year.

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BT Group, Reckitt Benckiser, Royal Dutch Shell and Taylor Wimpey also report this week.

Economic data

Friday’s non-farm payrolls will round off a busy week for economic data. Hiring in the US is expected to have cooled in July, with Wall Street projecting the US economy created 170,000 jobs, down from 224,000 in June. The unemployment rate is expected to hold steady at 3.7 per cent, while average hourly earnings are projected to rise 0.2 per cent month on month and 3.2 per cent year on year.

Personal income, pending home sales and consumer confidence statistics are all due on Tuesday. The ISM manufacturing report is on Thursday, which expected to show industry is stabilising and continuing to expand.

Eurozone GDP data are released on Wednesday. Temporary factors — such as private consumption in Germany and a boost in exports to the UK ahead of the original Brexit deadline in March — were believed to have pushed up growth in the euro area to 0.4 per cent in the first three months of the year. Economists expect GDP to have cooled to 0.2 per cent in the second quarter.

Inflation data are due for the eurozone — expected to show consumer price growth languishing well below the European Central Bank’s target of just below 2 per cent. Eurozone employment data are also out the same day.

France, Germany, Italy and Spain all release GDP figures this week.

Turkey has a quarterly inflation report out on Wednesday, when new central bank governor Murat Uysal is expected to answer questions for the first time. The lira emerged relatively unscathed after a 425-basis-point interest-rate cut at his first meeting.



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