BoC and FOMC rate decisions ahead

A largely downbeat assessment in early trade in Europe, with traders gradually reacting to a steady feed of economic data that has seen a focus on inflation and GDP growth. The early upside surprise for the French economy provided a welcome reacceleration to 0.3% in Q2, although that strength came largely in response to a sharp uptick in inventory accumulation which could reverse in the third quarter. Meanwhile, the German economy contracted by -0.1%, with the first quarter figure also downgraded to 0.3%. Notably, the German economy saw a decline in equipment and construction investment activity, potentially reflecting the concern over how tariffs could inform businesses over their future plans. On the inflation front, the Spanish CPI release brought an unwelcome rise in the annual CPI metric, pushing to a five-month high of 2.7% largely in response to rising electricity prices. While the monthly figure of -0.1% does still point towards an economy that has inflation under control, the 0.7% surge seen a month ago means we have seen some signs of reacceleration in prices.

Today brings a raft of key economic and corporate data releases that undoubtably have the potential to bring significant volatility across financial markets. Chief amongst those will be the rate decisions from the Bank of Canada and Federal Reserve, with Jerome Powell almost certain to announce another pause in the face of ongoing inflation uncertainty. However, with markets pricing a resumption of the easing process in September, traders will be watching closely for any openness to a more expensive policy stance in the months ahead. With the Fed likely to be driven heavily by the data in the coming months, the second half of this week provides a raft of key announcements with which to judge the appropriateness of a September rate cut. Will the core PCE inflation metric show signs of tariff inflation just as the CPI release did? Will the jobs report finally see payrolls slump as has been forecast over recent months? Will Trump introduce a raft of global reciprocal tariffs with countries that have not achieved a trade deal this Friday? All key concerns for traders and Fed members alike in the days ahead.

The tech sector finds itself in the limelight once again today, with earnings reports from Mag7 giants Microsoft and Meta coming alongside semiconductor stalwarts Arm Holdings and Qualcomm. Coming hot off the heels of strong TSMC and Alphabet earnings, traders will be watching closely for CapEx spending habits and chip demand figures to highlight the continuation of the AI story. Nonetheless, for Meta and Microsoft, their performance will once again come down to the hum drum areas of advertising and cloud revenues.