Introduction
On Monday, most global stocks saw a decline, with Chinese markets suffering the most significant losses due to ongoing concerns about a trade war with the West. The anticipation of signals regarding interest rates also contributed to the market unease. Despite a positive lead-in from Wall Street on Friday, where the S&P 500 and the NASDAQ Composite hit new highs, the optimism was tempered by the upcoming economic data and comments from Federal Reserve Chair Jerome Powell.
Regional Markets and Economic Data
In Asian trading, U.S. stock index futures drifted lower, reflecting the cautious sentiment in regional markets. This decline came despite the previous week's gains in U.S. markets, driven by growing bets on interest rate cuts. Investors are closely watching the upcoming inflation report, which is expected to provide crucial insights into the economic outlook.
In Japan and Australia, middling economic data also weighed on regional stocks. Japan's economy showed signs of stagnation, while Australia's data indicated slower-than-expected growth. These factors contributed to the overall cautious tone in the markets.
U.S. Economic Indicators and Labor Market
The upcoming inflation report is the key highlight of the week. Last week's labor market data showed fresh signs of moderation, with June's nonfarm payroll figures revealing an increase of 206,000 jobs, slightly down from May's revised count of 218,000. The U.S. unemployment rate experienced a slight uptick, moving from 4% to 4.1%, surpassing the Federal Reserve's projection of a 4% rate for the current year.
Inflationary pressures, a major concern for markets and policymakers, may also be easing. The ISM's prices paid index, which can foreshadow inflation trends for goods and services, reported lower-than-expected figures, aligning with the lowest rates since the pandemic's end. Additionally, annual wage gains from the nonfarm jobs report were at 3.9%, down from May's 4.1% and one of the lowest levels since the pandemic.
Political Developments: President Biden's Reelection Concerns
President Joe Biden is facing increased skepticism from within his own party regarding his potential 2024 reelection campaign. Despite a recent interview with ABC News intended to address these concerns, the doubts among Democratic lawmakers and strategists persist. Notably, Rep. Mike Quigley from Illinois and Rep. Angie Craig from Minnesota have publicly urged Biden to reconsider his intention to run for president again.
The calls from Quigley and Craig are significant developments, reflecting a broader sentiment of doubt within the Democratic Party. This growing dissent suggests a search for alternative strategies or candidates to strengthen the party's chances in the forthcoming electoral contest. TD Cowen strategists noted that it is challenging to see how this uncertainty can continue for more than a few weeks.
Federal Reserve Chair Jerome Powell's Testimony
Federal Reserve Chair Jerome Powell is scheduled to testify before the Senate and House on Tuesday and Wednesday, respectively. These hearings, primarily focused on monetary policy, are expected to address various regulatory questions. TD Cowen analysts anticipate that Powell will face inquiries regarding the Fed's stance on interest rates, inflation, and other critical economic issues.
Inflation Report and Market Expectations
The inflation report for June, set to be released on Thursday, July 11, is eagerly awaited by investors. Street expectations call for a 0.1% month-over-month (MoM) and 3.1% year-over-year (YoY) change. The core Consumer Price Index (CPI) is expected to increase by 0.2%. Bank of America aligns with the Street on both headline and core figures but expects the YoY change to come in at 3.2%.
Q2 Earnings Season
As the Q2 earnings season begins, early reports indicate robust performance for S&P 500 companies. Projections for the second quarter of 2024 suggest an earnings increase of 8.6% compared to the same period in the previous year, with revenues expected to rise by 4.7%. This anticipated growth rate is the most significant since the 9.9% uptick observed in the first quarter of 2022.
The positive revisions trend leading up to this earnings cycle sets the stage for a period of continued corporate resilience and an improving financial outlook. The forecasted earnings growth for the S&P 500 reflects a solid recovery and marks a potential shift in momentum for the market.
Other Economic Data
In addition to the much-anticipated CPI report, investors will focus on weekly jobless claims and the U.S. Producer Price Index (PPI) report, due on Thursday and Friday, respectively. These reports will provide further insights into the labor market and inflationary pressures, influencing market sentiment and policy decisions.
Conclusion
The global markets are navigating a complex landscape of trade tensions, economic data, and political developments. With Chinese markets leading losses, the focus shifts to key economic indicators and the Federal Reserve's stance on interest rates. The upcoming inflation report and Q2 earnings season will be crucial in shaping market expectations and determining the direction of the global economy in the coming weeks.
