1. The Fed
A busy week gets underway and amidst trade tensions, earnings, geopolitics and the July jobs report, the Federal Reserve is still the biggest voice in the room. Every piece to the trading and investing puzzle can ultimately fit in the Fed’s rhetoric and even a meeting with only a 2.5% probability of a rate hike still takes precedent. The central bank finds themselves in a comfortable spot ahead of their two-day meeting that concludes at 1:00 p.m. Central on Wednesday. New Chairman Powell has done a tremendous job applauding economic growth while tempering inflation expectations. They have signaled two more hikes this year, September’s probability is 90.3% for the first and December’s is 62.7% for the second. The market has digested this path extremely well and in hindsight, global trade in the spotlight has been nothing short of a gift for the Fed. Think about it; tariffs on steel and aluminum have caused price inflation and fresh concerns of stalling Chinese and world growth due to United States and China trade tensions will keep the Fed from having to move faster than expected. The one missed component is wage growth and that comes Friday, two days after the Fed’s lounge-chair meeting. All they must do is not rock the boat and we have no reason to look for a fumble with Powell quarterbacking. Remember, the Dollar sold off after their meeting and his press conference in June where they added that fourth hike to this year’s trajectory, it was the dovish path set by the ECB that rallied the Dollar.
2. Trade
U.S. and China trade heats up again this week with the White House expected to impose the second wave, $16 billion on Chinese goods, on Wednesday. This follow-up to the $34 billion implemented on July 6, brings the total to $50 billion. China is expected to retaliate and if so, President Trump has promised a third wave worth $200 billion. We have said time and time again, that the third wave would be the start of a trade war and it is unlikely that the broad market has priced this in while at all-time highs. Major U.S benchmarks finished lower on Friday and with trade in the headlines, volatility is likely to stay high. However, positive traction and a truce between the United States and the European Union after President Trump met with European Commission President Juncker last week along with an upbeat sentiment surrounding NAFTA would help offset the headline China risk. The development of all three moving pieces will be critical to the week’s landscape.
3. Data
The first look at July Eurozone CPI is due on Tuesday at 4:00 a.m. Central= and will be followed by the Fed’s preferred inflation indicator, PCE at 7:30 am CT. While neither number has seen tremendous volatility outside of expectations, these are two major data points that must be watched. The Euro stabilized once again at major three-star support at 1.1622 and the Dollar Index stalled midway between its recent range. Both reads are expected at 2.0% and anything outside of this will surely set a tone. In a jam-packed week, U.S Consumer Confidence will follow on Tuesday. ISM Manufacturing is due Wednesday; it has beaten expectations the last two months. Nonfarm Payroll is due Friday and as always, wage growth will be watched most closely. It was fallen well shy of expectations but has been accompanied by consistent job growth; a trend that has supported equity markets. ISM Non-Manufacturing is also due Friday.
4. Apple and Earnings
The world’s largest company, Apple will release earnings Tuesday after the bell. Please watch Bill Baruch discussing Apple on CNBC’s Trading Nation on Friday for our expectations. The bigger overall story may become, “peak earnings or not?” Caterpillar which made this call after Q1 sent shockwaves through global markets, they are due Monday before the bell. Last week was certainly crowded the headlines with big names and bigger moves but this week will be just as crucial; Loews, BP, Procter & Gamble, Pfizer, Tesla and many more are on the schedule.
5. Bank of Japan & Bank of England
The Federal Reserve is not the only central bank meeting this week. In fact, the Fed could arguably take a back seat in the sole significance of this week’s meetings. Both the BoJ and BoE are expected to tweak policy. The Bank of Japan meets first, Monday night U.S hours, and speculation mounted last week that the bank is considering adjusting its ultra-loose monetary policy to help favor financial institutions. The BoE meets on Thursday and analysts are expecting a 25-basis point increase, this would be their first true hike since 2007 (they did hike last year, reversing the Brexit cut).