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Both Eurozone and UK PMI numbers hinted at faster-than-expected slowdown in economic activity. Both the euro and sterling retreated against the US dollar.

The Federal Reserve (Fed) starts its two-day policy meeting today, and will highly likely announce a 25bp hike on Wednesday. But what Fed officials will also do is to remind investors that the tightening cycle is probably not juts yet.

US stocks traded higher yesterday with the S&P500 adding 0.40% and Nasdaq 0.14% after its special rebalancing. The US 2-year yield advanced past 4.90% and fell this morning. While the VIX index shows no sign of a particular stress from equity traders, BoFA’s MOVE index is close to 110 level, versus around the 60 level prior to the Q3 of 2021: bond traders remain very much uncertain about the number of additional rate hikes that the Fed could deliver. And there is no line in the sand, the Fed will continue hiking if the US jobs market, consumption, and housing market remain resilient to interest rate hikes.

On the corporate menu, Microsoft is due to announce its Q2 earnings after the bell today. Focus is on whether, and by how much Microsoft benefited from the AI craze and how much AI boosted growth for Azure.

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Last week ended on a caution note after the first earnings from Big Tech companies were not bad, but not good enough to further boost an already impressive rally so far this year. The S&P500 closed the week just 0.7% higher, Nasdaq slipped 0.6%, while Dow Jones recorded its 10th straight week of gains, the longest in six years, hinting that the tech rally could be rotating toward other and more cyclical parts of the economy as well.

This week, the earnings season continues in full swing. 150 S&P500 companies are due to announce their second quarter earnings throughout this week. Among them we have Microsoft, which is pretty much the main responsible of this year’s tech rally thanks to its ChatGPT, Meta, Alphabet, Visa, GM, Ford, Intel, Coca-Cola and some energy giants including Exxon Mobil and Chevron.

On the economic calendar, we have a busy agenda this week as well. Today, we will be watching a series of flash PMI figures to get a sense of how economies around the world felt so far in July, then important central bank meetings will hit the fan from tomorrow. The early data shows that both manufacturing and services in Australia remained in the contraction zone, as Japan’s manufacturing PMI dropped to a 4-month low in July. German figures could also disappoint those watching the EZ numbers.

On the central banks front, the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ) will meet this week, and the first two are expected to announce 25bp hike each to further tighten monetary conditions on both sides of the Atlantic.

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Stocks and bonds in the US fell yesterday. Stocks fell, sent down by a nearly 10% plunge in Tesla and more than a 8% dive in Netflix. Chip stocks fell as well around the world as TSM cut its annual outlook for revenue due to geopolitical tensions and weak global demand, and announced that its Arizona production plant will be delayed due to shortage of qualified labour that could build the plant.

Bonds, on the other hand, fell as well yesterday, as unemployment claims unexpectedly fell in the US. That strengthened the Federal Reserve (Fed) hawks’ hand yesterday on the reasoning that the US jobs market just won’t loosen

The US dollar index is better bid after hitting the lowest levels since April earlier this week. The US dollar index is up from its recent lows but is still at the lowest levels seen this year, the EURUSD is down below the 1.12 mark, gold trades around the $1970, while the USDJPY tests the 140 mark after inflation in Japan came in higher than last month but softer than the expectations.

One place where the doves are also very persistent is Turkey. The Central Bank of Turkey (CBT) increased its policy rate by 250bp at yesterday’s policy meeting, versus 500bp hike expected by analysts. The USDTRY rallied by around 40% since May and risks remain comfortably tilted to the upside.

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Nasdaq futures are down this morning, by about 0.50% at the time of writing, after Tesla and Netlfix fell post-earnings announcements. Goldman Sachs on the other hand was right warning investors that it was going to have a bad quarter, because it really had a BAD one.

Overall, the S&P500 and Nasdaq both extended gains yesterday but we could see some consolidation and downside correction today. The US 2-year yield remains steady around 4.70/4.80% range, as Federal Reserve (Fed) officials are in their quiet period before the next policy meeting and can’t insist that there will be more rate hikes on horizon! The US dollar index consolidates. The dollar-yen tested the 140 resistance. Cable tipped a toe below the 1.29 mark yesterday after the latest inflation figures came in softer than expected yesterday morning, while the euro is stronger following a stronger-than-expected core CPI read.

In commodities, wheat futures rallied 8.5% on escalating tensions in the Black Sea, while heatwaves and peak temperatures encourage capital inflows toward ESG funds, A/C and generator makers.

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The rally in US stocks extended on the back of good bank earnings and AI. Microsoft jumped up to 6% to a fresh all-time-high yesterday as progress on the regulatory front regarding the acquisition of Activision Blizzard, and the news that its Microsoft 365 Copilot, based on OpenAI’s artificial intelligence, will be broadly available and cost $30 per month per user got investors rushing back to the stock and extend the November-to-date rally to 72%! The S&P500 and Nasdaq 100 to fresh highs since the first months of 2022.

On the data front, the softer-than-expected retail sales and production data from the US came to soften the Federal Reserve (Fed) hawks’ hands yesterday, and kept the US yields downbeat, which also helped boost stock valuations in parallel to earnings.

The US dollar index consolidates at the lowest levels since April 2022, The EURUSD bounced lower after hitting 1.1275 on dovish comments from European Central Bank (ECB) officials.

Across the Channel, softer-than-expected UK inflation sent Cable below 1.30.

Today, all eyes are on Goldman Sachs, Netflix and Tesla earnings.

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Soft Chinese figures hit energy, metals and European luxury stocks yesterday, while wheat futures jumped as Russia called off the grain deal in Black Sea.

US stocks, however, extended rally and the US 2-year yield consolidated around 4.70% as investors started betting on when the Fed would cut the rates in the coming months.

Today, the Bank of America, Morgan Stanley and Lockheed Martin will be releasing their quarterly earnings. While BoFA and Morgan Stanley’s investment branches may have taken a hit, investors will be looking at how well these banks benefited from rising rates. Lockheed Martin on the other hand will undoubtedly continue outperforming as war and geopolitical tensions only keep rising and increasing the defense budgets around the world.

On the macro calendar, the US retail sales will be in focus today, as the resilience of the US consumer spending is another headache in the Fed’s fight against inflation, and the data could not surprise to the downside. According to Bank of America’s card data, spending in June was down by 0.2% ‘but not out’ and the official numbers are expected to show a slow improvement. A better-than-expected read could fuel inflation expectations and slowdown the US dollar’s selloff but unless we see seriously strong data, any improvement will unlikely to turn the bearish winds around in the medium run.

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The Chinese economy grew slower-than-expected in Q2. The kneejerk reaction in markets was unenthusiastic. American crude extended retreat below the $75pb, after hitting and bouncing lower from the 200-DMA, that stands near $77pb last week. The rejection was expected, and the selloff could deepen toward the 100-DMA, near $73.50 level. Copper futures are also down this morning and testing the 100-DMA following a 7% rebound since the start of the month. Iron ore futures remain under pressure, and the Aussie is down nearly 1.30% against the US dollar, after forming a double top near the 69 cents level last week, on the back of a broad-based dollar weakness.

Zooming out, the US dollar is not further sold across the board this Monday, but the dollar index consolidates near the lowest levels since April 2022, and is below the 100 mark and is expected to further cool down.

This week, all eyes are now turning toward the US companies’ earnings this week. The first earnings from the bis US banks came in better-than-expected last Friday and added to the overall investor enthusiasm after the US inflation data confirmed an encouraging easing in the US inflation, which in return softened the hawkish Federal Reserve (Fed) expectations and fueled a rally in both stock and bond markets.

Other big US banks, Netflix, Tesla, IBM, TSM, American Airlines and American Express will go to the earnings confessional this week. Overall, analysts project that S&P 500 companies will see the biggest contraction in earnings growth during the second quarter, where profits are expected to fall by 7-9% year-over-year.

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We are having a great week in terms of US inflation news. After Wednesday’s data showed that the US headline inflation slowed to 3%, and core inflation fell to 4.8% - both lower than what analysts had penciled in, yesterday’s producer price inflation data also came in lower than expected.

As a result, the US yields further dived and the US dollar index slipped below the 100 mark. The S&P500 extended gains yesterday, and closed the session above the 4500 mark for the first time since April 2022, while Nasdaq 100 rallied another 1.73%. Amazon jumped to a 10-month high yesterday after reporting record sales during its Prime Day. Happily, this week’s inflation numbers were sufficiently soothing, so that the record Prime Day sales didn’t boost inflation expectations. MAMAA stocks were up by 1.82%. Crude oil on the other hand rallied past the 200-DMA, near $77pb, and consolidates at around that level this morning.

One good news is that, although the resilience of the US jobs market remains a major concern for the Fed, the stock market rally could be a much smaller concern according to the Fed’s recently launched financial conditions index.

Slow growth is bad for stock valuations, but investors remain focused on earnings, rather than the overall financial conditions, and we have good news on the earnings front so far. Delta Airlines reported record revenue and profit in Q2, and said that they are ‘looking at a very, very strong Q3’, while PepsiCo revealed a strong quarter thanks to higher prices they could ask from customers, and after raising its sales and earnings estimates. Today, some US big banks will go to the earnings confessional.

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Headline US inflation eased to 3&, and core inflation eased more than expected to 4.8%. That’s still more than twice the Fed’s 2% policy target, the latest set of data is good news for breaking the Fed hawks back amid mounting tension over the past few weeks.

There hasn’t been much change in the expectation of another 25bp hike at the Fed’s next policy meeting, which is now given a more than 90% chance, but the expectation for a September hike fell, the US yields dropped and the dollar fell.

The EURUSD spiked to 1.1150, Cable advanced past the 1.30 level, while the dollar-yen extended losses below the 140 psychological mark. In precious metals, gold is thriving on the back of softer yields and the softer dollar. The price of an ounce rallied past $1960 and consolidates near $1955 at the time of writing.

In energy, oil bulls target the 200-DMA, that stands near the $77pb level, yet the $77/80 range will be hard to drill.

In equities, soft US inflation and decline in US yields pushed the S&P500 to a fresh high since April 2022. Nasdaq 100, on the other hand, rallied to the highest levels since the beginning of last year. Note that, because Nasdaq 100 is now over-concentrated in Mega Cap stocks, there will be a rebalancing in the weightings of the index, and the changing weights could weigh on Nasdaq, as the best performing stocks will see their weight drawn down.

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