You May Have Arrived at Your Destination – Reuters

LONDON (Reuters) – Next week promises to be eventful for traders and investors in the financial markets, as they consider the potential peak of Federal Reserve interest rates, another possible rate hike in Australia, a series of European bank earnings reports, and the ongoing conflict in Gaza.

Here’s a preview of the upcoming week prepared by Marc Jones and Dhara Ranasinghe in London, Kevin Buckland in Tokyo, Tom Westbrook in Singapore, and Lewis Krauskopf in New York.

1. GRAND PLANS

With interest rates reaching their current peak, investors are speculating whether central banks—including the Federal Reserve, European Central Bank, and Bank of England—might start lowering them soon. The ECB, facing a rapid decline in euro zone inflation and an economy poised for stagnation or recession, might consider rate cuts beginning in April, while the BoE has a forecast for cuts by next August. Meanwhile, despite a resilient U.S. economy, recent manufacturing data has raised concerns, leading markets to assign a 70% probability that the Fed’s extensive tightening cycle may be concluding and that rate cuts could commence as early as June. This optimism has contributed to a strong week for global stocks, so attention will be focused on whether central bankers will temper discussions of cuts until inflation is under control.

2. YO-YO YEN

Foreign exchange traders have closely watched the yen’s rise towards 150 per dollar, only to see the Bank of Japan push it past that mark this week with a modest plan to scale back its long-standing stimulus measures. The yen rallied again as expectations grew that the Fed has reached peak rates, setting the stage for an intriguing week ahead. While concerns about the 150 threshold may have eased, the risk of BOJ intervention remains significant, particularly given the weak yen and growing unpopularity of the current administration in Japan. Historically, central bankers often intervene shortly after shifts in market trends.

3. CHURNING THE EARNINGS

Investor hopes for a recovery in U.S. earnings following a slow first half of the year appear to be materializing, but significant challenges remain. With over 300 companies having reported, earnings are projected to increase by 5% year-on-year, with around 80% exceeding forecasts. Major companies reporting next week include eBay and D.R. Horton on Tuesday, followed by Walt Disney and Biogen on Wednesday. Additionally, later this month, attention will turn to major U.S. retailers and Nvidia, a standout in the AI sector.

In Europe, the focus will be on financial performances with key players such as UBS, Commerzbank, ABN Amro, ArcelorMittal, and Allianz announcing their results throughout the week.

4. ONE MONTH IN

Next week marks one month since the deadly assault by Hamas in Israel, which has escalated the longstanding Middle East conflict significantly. Israeli forces have advanced into Gaza City, facing resistance from militant attacks utilizing underground tunnels. Health officials in Gaza report a Palestinian death toll exceeding 9,000. For those trading in financial markets, this situation remains critical. Safe-haven gold has surged nearly 10% since the conflict began, while oil prices, which initially spiked over fears of Iranian involvement, have returned to previous levels. However, tensions could reignite, with calls for a pause in hostilities growing and diplomatic talks scheduled in the region.

5. RACE DAY RATE HIKE

The Melbourne Cup horse race takes place on Tuesday, but the focus for many is on a potential rate hike from the Reserve Bank of Australia that day. Following a stronger-than-expected inflation report, futures markets now suggest a nearly 60% chance of a quarter-point increase. All major Australian banks anticipate this hike, with some predicting the current cash rate could rise from 4.1% to 4.60% and remain there through 2024. Notably, Australian government bond yields have reached their highest levels since 2011, although they have pulled back slightly amid developments from the Fed. Additionally, the Australian dollar is performing well against its New Zealand counterpart due to diverging rate expectations.