It’s a bumper week of central bank meetings and the latest earnings from some of the biggest companies on the planet. The summer holidays mean policymakers from three of the biggest G10 central banks will direct markets over the next month or so before they meet again in September. Alphabet, Microsoft and Meta Q2 results could also shift the dial on the tech-led rally that has confounded many stock market doomsters with the outsized gains seen already this year.

The key calendar event will be the midweek FOMC meeting which comes after the June inflation report showed positive signs of disinflation. Meanwhile the jobs market remains tight and the economy has held up relatively well. Most recent Fedspeak has broadly pointed to the need to hike rates by 25bps, which markets currently fully price in. This would be the first of two hikes as indicated by the Fed’s current dot plot of rate projections, though markets are far less convinced that policymakers will pull the trigger after July. Fed Chair Powell will probably keep the door open to further rate hikes but acknowledge encouraging signs on inflation. There are two more CPI and non-farm payrolls reports before the next FOMC meeting in mid-September.

The ECB is also widely expected to deliver a 25bp hike but market pricing is less certain about a follow up move in September with only around a 50% probability of a hike. Messaging on the rate outlook after the decision will be the main driver of the euro’s reaction with President Lagarde likely to stress the ECB’s data dependent stance. This seems prudent as we still get two inflation reports in July and August before the next meeting, while the Governing Council will be armed with their latest macro projections. EUR/USD hit highs last seen in February 2022 at 1.1275 last week. But the short-term technical undertone remains soft after losses picked up on Thursday. Retracement support (38.2% Fib level of the July rally) sits at 1.1110.

The Bank of Japan meeting finishes off the week with recent reports suggesting policymakers see little need to act on its dovish policies or tweak the Yield Curve Control policy. Indeed, this news saw USD/JPY jump 1.25% on Friday even though Japanese officials later stated that they were monitoring FX developments with “a sense of urgency”. We note the current “line in the sand” drawn by Japanese authorities for potential intervention appears to be 145. Markets may focus on the bank’s new inflation projections which could support the yen if they are revised notably higher. But the flip side and softer than expected forecasts could occur if Governor Ueda maintains the narrative that inflation is being driven by expensive imports rather than domestic demand.

Major risk events of the week

24 July 2023, Monday

–Eurozone PMIs: Manufacturing activity is expected to remain subdued and below the 50 boom/bust line. The sector has been in decline since July 2022 with the downturn deepening to 43.6 in May. The previous resilient services sector barely grew, sinking to a five-month low at 50.3. Analysts suggest the region’s economy is at best stagnating after a recession in the previous two quarters.

25 July 2023, Tuesday

–German IFO Business Sentiment: The market median is for a reading of 88 so lower than the 88.5 print in June. Both business expectations and current business conditions fell. Analysts say the optimism at the start of the year seems to have given way to more of a sense of reality. China’s weak recovery and ongoing policy tightening appears to be weighing on sentiment.

26 July 2023, Wednesday

-FOMC Meeting: A 25bp rate hike is fully priced so analysts indicate the focus will be on when it is time for a prolonged pause to assess both any upside risks to inflation and also downside concerns around growth. Powell may be keen to stress policy flexibility and emphasise the data dependent nature of policy. The last meeting showed an updated dot plot with two more rate rises expected this year.

27 July 2023, Thursday

–ECB Meeting: Money markets have nailed on a 25bps rate hike taking the deposit rate to 3.75%. Strong underlying, core inflation is fully expected to prompt further tightening with another hike in September likely. But several ECB officials have questioned the need for that including a prominent hawk. Recent data also looks muted which contrasts with President Lagarde’s more hawkish stance.

-US GDP, Durable Goods: Expectations are for GDP to slow to 1.8% from 2% in the first quarter. Growth is seen subsiding as consumer spending moderates. June durable goods are forecast to fall to 1% from 1.8% in May. Weaker business sentiment is likely to dampen demand although strong Boeing orders may help.

28 July 2023, Friday

-BoJ Meeting: Expectations are for no changes to policy after recent dovish comments from Governor Ueda. But it is a close call with some analysts thinking that tweaks to yield curve control are still possible as the window to alter the bank’s long-held uber-dovish policy is closing.  Recent data support steady inflation and a sustained recovery.

-US Core PCE Inflation: The Fed’s favoured inflation gauge is seen matching the CPI result at 0.2%. That said, there are technical differences which hint at a marginal upside risk for the core PCE deflator. The dollar enjoyed four straight days of gains last week. But the long-term trend is for lower prices as we get very close to peak rates and more prolonged talks of cuts.