Pessimism creeping back in

We’re seeing a little more pessimism in the markets on Tuesday as conditions remain choppy ahead of this evening’s tech earnings and the Fed tomorrow.

It’s impossible to ignore what’s to come over the next couple of days and the warning from Walmart has just added to some of the anxiety that was already evident. This earnings season will be anything but straightforward and we should prepare for some disappointments even against the backdrop of low expectations.

The Fed has an extremely tough job on its hands but looks set to hike by 75 basis points on Wednesday with the market pricing in a small chance of 100. This, along with earnings and the GDP data will set the tone for the coming weeks.

The Biden administration’s comments on Monday on what constitutes a recession have left many nervous that the data will deliver an unwelcome shock. Forecasts currently point to 0.4% growth in the second quarter but it does feel like the administration is getting in ahead of the bad news and hoping to dictate the narrative.

If the US is in recession, will that influence the Fed decision and tone on Wednesday? I don’t think it will as its primary concern has to be inflation and the longer-term consequences of not getting a grip of it immediately. But investors will be paying very close attention.

Throw in earnings from the tech giants, among many others, this week and it could be a bitter blow for the US economic prospects ahead of the midterms. That’s clearly the concern in the White House and one that could rock the markets once more.

Housing market weakness is nothing new but the new homes data was another blow, coming in well below expectations. No one should be surprised by the downturn given the economic direction, inflation and interest rates. Hopefully not a sign of things to come this week but I wouldn’t be surprised if it is.

Another blow

Bitcoin was really enjoying its time out of the headlines, rallying almost 30% from 13th to 20th July before consolidating ahead of the Fed. It was looking potentially promising and then the SEC investigating Coinbase story broke and the price has fallen more than 6%. The bad news just won’t stop coming for the crypto community and that will make any recovery very challenging in this environment. Cryptos are now vulnerable going into a huge couple of days for the broader markets.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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