Asian markets edged higher on Tuesday, drawing support from China’s technology sector as investors braced for another busy and potentially volatile week for financial markets.
Overnight, Wall Street delivered a mixed performance thanks to the growing caution ahead of earnings from the tech titans, as well as the Federal Reserve decision on Wednesday. In the FX space, the dollar weakened against most G10 currencies while gold traded within a tight range, waiting for a fresh fundamental catalyst. Oil prices are on the front foot this morning following reports that Russia plans to tighten its gas supplies on Europe.
On the data front, the IMF will be in focus today as it releases an updated world economic outlook. There are also a couple of key economic releases from major economies over the next few days, especially in the United States. It may be wise to keep an eye out on the latest US consumer confidence report for July, US Q2 GDP, and the PCE core deflator among other key economic releases.
The tech megacaps will be under the spotlight as they publish their earnings this week. Google’s parent company, Alphabet, and Microsoft announce their results today after US markets close. Meta, Amazon, and Apple report their earnings over the next few days. If these titans report much better than expected quarterly result, this could support US equity markets, especially the Nasdaq 100 which is down almost 25% year-to-date.
It’s all about the Fed meeting
The Federal Reserve is widely expected to raise interest rates by 75-basis points for a second straight meeting tomorrow. However, the main focus will be directed towards Fed Chair Jerome Powell’s post-meeting conference. When considering how financial markets remain highly sensitive to any topic relating to inflation and interest rates, Powell will have to choose his words very wisely. He is likely to highlight the Fed’s determination to extinguish inflation while inflicting more pain on the economy with continued policy tightening. While the U.S economy seems to be holding steady with the latest employment numbers encouraging, inflation remains a cause for concern as consumer prices jumped 9.1% in June from a year earlier. There have also been worrying signs from recent data with weakness in business survey data and the jobless claims.
If the Fed moves ahead with a 75-basis point hike, this may not be enough to keep dollar bulls in the driving seat. Such a move needs to be complemented by firmly hawkish comments from Powell, feeding speculation around more aggressive hikes this year. Should the Fed surprise the market with a smaller than expected hike, this could send the dollar tumbling with a cautious- sounding Powell adding insult to injury. Whatever the outcome of the Fed meeting, it is likely to influence the dollar which has weakened against most G10 currencies this week.
Commodity spotlight – Gold
Gold is likely to remain on standby until the Fed rate decision on Wednesday. The precious metal has barely moved since Monday due to the absence of a fresh directional catalyst. It will be interesting to see how gold reacts when the Fed moves ahead with a 75-basis rate hike. Will the precious metal weaken due to its zero-yielding status? Or will a weaker dollar limit downside losses?
Looking at the technical picture, prices are trading around the $1724 level as of writing. The $1700 remains a key point of interest this week and a level that can determine whether gold rebounds or extends the decline.
