By Peter Nurse
Investing.com -- This week’s policy-setting meeting by the Federal Reserve dominates activity, with the central bank set to raise interest rates again. The country’s major tech companies are also due to report quarterly earnings, while economic conditions deteriorated in Europe’s largest economy and China Evergrande Group announced changes in the C-suite. Here's what you need to know in financial markets on Monday, July 25.
1. Next Fed hike looms large
The main focus this week will be on the two-day policy-setting meeting of the Federal Reserve, concluding on Wednesday.
The U.S. central bank is widely expected to raise interest rates by 75 basis points after policymakers largely poured cold water on the idea of another full percentage point hike to add on to June’s surprise.
Away from the size of the rate hike, investors will be looking at whether the Fed thinks inflation is peaking and the chances of the U.S. economy moving into recession as they try to gauge the scope of a September rate move.
At the weekend, former Treasury Secretary Lawrence Summers cast doubt on the likelihood of a soft landing for the U.S., while incumbent Janet Yellen said that she doesn’t see any sign the economy is in a broad recession.
2. Germany on cusp of recession
German business morale fell more than expected in July, with data from the Ifo institute Monday suggesting Europe's largest economy is on the verge of a recession.
The Ifo institute, a highly regarded research institution, said its business climax index was 88.6, its lowest level in more than two years, while the June reading was also downwardly revised to 92.2.
Last week the German manufacturing PMI release fell to 49.2 in July, dropping in contraction territory and its lowest level in 25 months, reinforcing predictions that Europe’s biggest economy is heading into a recession in the second half of 2022.
This comes after the European Central Bank raised interest rates for the first time in 11 years last week, ending a policy of negative interest rates that had been in place since 2014.
3. Stocks set to open just higher; Big Tech earnings due
U.S. stock markets are set to open moderately higher Monday, with investors awaiting the results from the Fed meeting later this week [see above] as well earnings from a number of the biggest companies in the world.
By 6:20 AM ET (1020 GMT), Dow Jones futures were up 150 points or 0.5%, while S&P 500 futures were up 0.5%, and Nasdaq 100 futures were up 0.6%.
Monday sees the release of numbers from NXP (NASDAQ:NXPI), Whirlpool (NYSE:WHR), and F5 Networks (NASDAQ:FFIV) after the close. But most eyes will be on the tech sector with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) starting the ball rolling on Tuesday, Facebook parent Meta Platforms (NASDAQ:META) following on Wednesday, while Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) arrive on Thursday.
Disappointing results from Snap (NYSE:SNAP), the owner of Snapchat, last week signaled advertisers had tightened their purse strings in response to a deteriorating economic outlook, which means all eyes will be on the digital advertising space.
4. Evergrande restructuring delay?
China Evergrande Group announced Friday that Chief Executive Officer Xia Haijun and Chief Financial Officer Pan Darong had left the highly indebted property developer after a probe into the use of company deposits as security to obtain bank loans.
Siu Shawn, an executive director, is set to take over as CEO and was reported Friday saying that the firm has reached “basic consensus” on debt restructuring principles with multiple major global creditors.
The company caused turmoil late last year when it defaulted on dollar-bond payments and has previously said it was on track to deliver a preliminary restructuring plan for its around $300 billion of liabilities by the end of July.
That doesn’t leave much time, particularly given this new shakeup of the company’s senior management.
5. Oil edges higher; Libya aims to double production
Crude oil prices rose Monday, recovering after recent losses as Libya increased its output and ahead of an expected rise in U.S. interest rates.
Oil prices have struggled over the last month as traders have feared further interest rate hikes, particularly in the U.S., the largest consumer of crude in the world, could limit economic activity and thus cut fuel demand growth.
The Federal Reserve meets this week and is expected to announce on Wednesday another hefty rate hike, probably by 75 basis points.
On the supply side, Libya’s National Oil Corporation stated on Saturday that it aims to double production to 1.2 million barrels per day in two weeks. The OPEC member has seen its production plummet by about 50% in recent months amid a power struggle between rival governments and chronic under-investment in infrastructure.
By 6:20 AM ET, U.S. crude futures were up 0.9% at $95.58 a barrel, while Brent crude was up 0.8% at $99.14 a barrel. Both benchmarks are lower for the fourth consecutive session.