Next week (July 21-27) will be a week of information overload and extreme market sensitivity.
In the absence of the Federal Reserve, policy choices in Europe, global Flash PMI, and earnings reports from tech giants will collectively determine whether the market leans towards optimism or pessimism.
The European Central Bank is now at an extremely awkward crossroads.
The interest rate cut in June seemed more like a politically correct gesture, intended to demonstrate its decision-making capability independent of the Federal Reserve,
and to address concerns from some Southern European countries about the economy.
However, the rebound in inflation data (June CPI 2.7%) has ruthlessly slapped Lagarde in the face, making the option of continued interest rate cuts in Europe very risky, with a high probability of a hawkish shift this week.
Additionally, on July 24, the rolling release of the S&P Global July Manufacturing/Services Flash PMI for the US, Eurozone, UK, Japan, Australia, and India will serve as a direct indicator of the global economic health.
Let’s discuss why this PMI is important: first, the inventory replenishment in manufacturing in June is likely temporary, as the market currently cannot determine whether the replenishment is a passive addition due to low inventory levels or if non-end demand is indeed recovering. The key issue is whether the replenishment of manufacturing inventory is accompanied by a sustained increase in new orders.
Moreover, there is the Services PMI, as the service sector is the main driver of growth and inflation in developed economies. Whether it can achieve a soft landing depends largely on the momentum in the service sector, and the persistently high service prices also pose a risk of lowering expectations for interest rate cuts in September.
Finally, there are the earnings reports from tech companies, which also have the greatest impact on the crypto space.
The focus will mainly be on the earnings reports from Alphabet (Google) and Tesla. However, the focus is no longer just about the performance of these two companies; it is about whether the core logic of the current bull market, the AI narrative, can continue.
Google's issue lies in its high valuation; the future will determine whether it can maintain such a high valuation. Tesla's issue concerns whether Robotaxi and Optimus can be realized and whether there is enough money to spend. Specific judgments will have to wait until the reports are made public; if the earnings reports are poor, it may be time to gradually sell off AI-related positions.