Market movers: Key catalysts to keep your eye on

Following a volatile week dominated by British and French elections, along with brewing US election jitters and the June NFP report, the coming week offers little respite for traders. Here's a look at the key statistics and events that could rock the markets.

Powell’s semi annual testimony - Tuesday 9th of June

U.S. Federal Reserve Chair Jerome Powell will give the Senate Banking Committee his semiannual hearing on monetary policy. He will speak about the current economic situation in the United States, the outlook, and the monetary policy. There will also be an opening remark from each senator, which could provide insights into the current economic situation and where the American economy goes from here.

Powell was first appointed Fed Chair by former President Donald Trump, and President Joe Biden nominated him for a second term. Powell will probably face a barrage of questioning from senators, and his answers could shed some light on the Fed's future monetary policy decisions.

Powell said during the central bank forum in Sintra that they “made quite a bit of progress in bringing inflation back down to the 2% target." But he also issued a warning against responding hastily to this improvement, since this might buck the decreasing trend in pricing. Powell pointed out that with the consistent inflation, solid labour market, and robust economy, the dangers of doing nothing vs acting too quickly have become more evenly balanced this year.

As the Fed’s latest dot plot showed that only one rate cut was expected in 2024, traders are now trying to forecast the timing of this first rate cut. Some traders first believed that September might be it, but many now predict that the Fed won't make any big moves until after November, due to the approaching presidential election.

Reserve Bank of New Zealand monetary policy decision - Wednesday 10th of June at 2:00 AM GMT

New Zealand's government, in collaboration with the Reserve Bank of New Zealand (RBNZ), aims to maintain low and stable inflation. They achieve this by setting a target range for inflation. Currently, this target sits between 1% and 3% over the medium term, with a focus on keeping inflation around 2%. This target helps ensure a healthy economy where prices rise slowly and predictably.

Unfortunately, recent inflation figures in New Zealand showed higher inflation. As of the March 2024 quarter, inflation reached 4%, exceeding the RBNZ's target range, which means the cost of goods and services is still rising faster than desired.

The RBNZ is tasked with keeping inflation within the target range. To achieve this, they primarily use a tool called the Official Cash Rate (OCR). By raising the OCR, the RBNZ discourages borrowing and spending, which can help slow inflation.

In their latest meeting, the RBNZ opted to keep interest rates unchanged at 5.50% for the seventh consecutive time. This decision reflects their cautious approach, balancing the need to combat inflation with supporting healthy growth in the country.

Financial markets anticipate the RBNZ to eventually lower interest rates. As of May 16th, 2024, market participants expect the first rate cut (25 basis points) to occur in November 2024. They project a further two reductions by April 2025, bringing the total decrease to 75 basis points.

Earnings season kicks off - Friday 12h of July

JPMorgan Chase, Citigroup, and Wells Fargo take centre stage on July 12th, kicking off earnings season for the second quarter. While these financial giants exceeded expectations in Q1, they now face uncertainty surrounding the long-term impact of rising interest rates on borrowers.

These reports, along with those from upcoming sectors like big tech, will be crucial in determining the fate of the S&P 500. The index has enjoyed a stellar first half, surging 14.5%. However, this strong performance, combined with already high stock valuations, creates a scenario where disappointing earnings could trigger a correction.

On Friday, investors will be mostly focused on loan growth (did rising interest rates dampen borrowing activity in Q2?), profit margins (how are banks managing the balance between higher rates and potential loan defaults?) and forward guidance (what is the outlook for the rest of the year, considering the evolving interest rate environment?).

The answers to these questions will not only impact the banking sector but also provide valuable insights into the overall health of the U.S. economy and potentially influence the direction of the broader market.