Will the Federal Reserve surprise the markets next week?
Is there any room for the Fed to surprise the markets next week?
The Federal Reserve is widely expected to raise interest rates by 0.75 percentage points at its July policy meeting next week.
Officials such as Federal Reserve Governor Christopher Waller have signaled in the past few weeks that the central bank will introduce a rate hike of the same size as last month, after an inflation report showed consumer prices in June rose to their highest in 40 years.
The report also showed a sharp rise in so-called core inflation – which removes the volatile food and energy sectors – led by rising rental and shelter costs.
This inflation data initially led futures market traders to price the prospect of a full percentage point increase, but investors have since lowered their expectations for those levels.
Analysts and economists say there is little chance that the Fed will deviate from the expected 0.75 percentage point increase. But the markets may be surprised by any clues from President Jay Powell regarding the bank’s plans for the September meeting. Futures markets are betting that the Fed’s key interest rate will be 3 percent in September, which means a 0.75 rate increase.
But evidence of the Federal Reserve’s concern about weak economic data may limit expectations. Kate Dugwid
Is inflation accelerating in the eurozone again?
Eurozone inflation is set to rise again when July data is released on Friday.
Consumer prices in the Eurozone rose at an annualized pace of 8.6 percent in June, the highest rate since the existence of the euro currency. Economists polled by Reuters expect price growth to accelerate to 8.8 percent this month, reflecting higher global energy and food prices in the wake of the war in Ukraine.
“We expect inflation to remain undesirably high for some time, due to ongoing pressures from energy and food prices and pipeline pressures in the pricing chain,” European Central Bank President Christine Lagarde said at last week’s bank meeting. He announced a 0.5 percentage point increase in the key interest rate.
Lagarde added that higher inflationary pressures were also caused by the depreciation of the euro exchange rate and that risks to inflation expectations “remain to the upside and intensify, especially in the short term.”
However, the direction of inflation also depends on the deteriorating economic activity. Eurostat will publish data on economic growth in the Eurozone for the second quarter on Friday along with rapid inflation. Analysts expect growth to slow on a quarterly basis to just 0.1 percent from the 0.6 percent expansion in the first three months of the year.
After the second quarter, the broader picture is that “the eurozone economy appears to be physically exposed to the prospect of cutting gas supplies to Europe completely,” says Sandra Horsfield, an economist at Investec. While she does not believe that will happen, “the high level of energy prices in and of itself will be a burden on production, as well as high rates of policy.” Valentine’s Day in Rome
Will Apple’s Earnings Indicate Slower Growth?
Apple’s June quarter is expected to look remarkably quiet compared to last year.
Analysts expect the iPhone maker to generate $82.5 billion in revenue, up just 1.4 percent from the previous 12 months when revenue rose 36 percent.
Apple prepared investors for a recession. In April, it forecast that supply chain headwinds and factory closures in China could cost it $8 billion this quarter.
Morgan Stanley, who is generally bullish on Apple, expects revenue of $80.6 billion, marking the tech giant’s first annual sales decline since the March quarter of 2019.
The bank says it will pay special attention to exchange rate hiccups due to the appreciation of the dollar, as Apple has been raising prices in overseas markets. However, she calls Apple “the best name in economic downturns.”
If the numbers are weak, just as recession fears intensify, investors looking ahead to the September quarter may also be concerned that the past two years of unchecked demand for iStuff may wane.
Where Apple can surprise me is with the iPhone, which still accounts for about half of all revenue. Recent data from China indicates that the smartphone recovery took hold in June after Beijing eased Covid-19 restrictions. Some analysts believe iPhone shipments in China last month were triple what they were a year ago.
Another potential ticket is in services, the fast-growing division of app store revenue and media subscriptions where the tech giant sports profit margins of 70 percent. If the recession eventually slashes hardware sales, Oprah Winfrey’s 2019 reminder of Apple’s global reach in services could provide relief to investors: “They’re in a billion pockets, you all.” Patrick McGee