What to Watch Across Markets This Week: July 29, 2024

What to Watch Across Markets This Week: July 29, 2024

• The Fed's preferred inflation index indicated moderate price increases.
• Global tax discussions were a key topic during the G20 meetings
• Earnings releases to watch for this week
• Key central banks, including the Fed, BOJ, and BOE, are set to announce their interest rates

Market Recap: Last Week's Highlights

U.S. Core PCE Price Index

On Friday, July 26, 2024, the Fed’s preferred inflation index, the Core PCE Price Index m/m, was released and met expectations at 0.2%. This indicates that prices increased at a moderate pace last month (Figure 1), leading to a drop in the U.S. Dollar's value following the news. The overall gradual decrease (Figure 1) in the index could potentially signal the end of the U.S. inflation crisis, as per analyst analysis.

Figure 1: PCE Price index (YoY) in orange vs PCE Price Index (MoM) in blue, April 2021-July 2024, trading view

G20 Meetings

Finance ministers from leading countries met in Rio de Janeiro on July 25, 2024 to July 26, 2024 to discuss a global tax on the super-rich. The proposal suggests individuals with over $1 billion in assets pay a 2% tax on their wealth. Brazil, currently holding the G20 presidency, supports this idea, but there is opposition from countries like the U.S., which cites the challenges of global tax coordination. Brazil's Finance Minister, Fernando Haddad, emphasized that the proposal's mention in the final declaration is a significant first step. This initiative aims to reduce the use of tax havens and generate $200-250 billion annually from about 3,000 billionaires. The funds could support public services and combat climate change. Brazil's President Lula highlighted the need for higher taxes on the super-rich to address inequality and poverty. He also proposed a global alliance to fight hunger and poverty, managed by the U.N., with financial support from Brazil until 2030.

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What to Watch Out for This Week 

This week, several key central banks are set to make significant announcements, including the Federal Reserve, the Bank of Japan, and the Bank of England, all of which are expected to impact global financial markets. Let's take a closer look at each one.

Federal Reserve

On Wednesday, July 31, 2024, the Federal Funds Rate will be announced at 10:00 PM GMT+4 (Dubai Time). It is anticipated that the interest rate will remain steady at 5.50%. However, officials may indicate a potential rate cut as early as September due to recent economic softening in the U.S. If the economy weakens faster than expected, it could put additional pressure on the Federal Reserve to cut rates more quickly to address these concerns, as per analyst analysis.

Bank of Japan

Additionally, on Wednesday, July 31, 2024, the Bank of Japan (BOJ) will announce its Policy Rate. There is uncertainty about whether the BOJ will raise interest rates and reduce its purchase of government bonds, a process known as quantitative tightening (QT). If the BOJ decides to take these actions, it could narrow the interest rate gap with the U.S. and strengthen the Japanese Yen. Aggressively cutting Japanese Government Bond purchases could potentially cause the USD/JPY currency pair to drop below 150, as per analyst analysis. However, analysts expect the BOJ to leave interest rates unchanged on Wednesday, despite speculation about a possible rate hike.

Bank of England

On Thursday, August 1, 2024, the Bank of England (BOE) is scheduled to announce its Official Bank Rate at 3:00 PM GMT+4 (Dubai Time). The market anticipates a 25-basis point cut, bringing the interest rate down to 5.00% from the previous 5.25%, a rate not seen since July 2023 (Figure 2). This potential rate cut could be attributed to the recent decline in the Consumer Price Index (CPI) year-over-year, which has fallen steadily since the beginning of the year, reaching the BOE's 2% target.

Figure 2: United Kingdom Interest Rate, January 2020 – July 2024, trading view