BoJ, Fed and Earnings to Dominate This Week

It’s been a relatively quiet start to the week in the markets but this should pick up quite considerably with a couple of big central bank decisions to come and more than a third of S&P 500 companies reporting second quarter earnings.

The stand out central bank decision is the Bank of Japan, with high expectations in the markets that a new round of monetary stimulus will be launched. It was thought that the BoJ was exploring the idea of helicopter money, something that was firmly denied in an interview with Governor Haruhiko Kuroda last week, which took the edge off the yen weakness from the last couple of weeks. This was partially undone by the revelation that the interview was conducted in June, although it’s unlikely that his view has changed significantly since then.

Still, the BoJ has a number of avenues open to it, as we’ve seen with the ECB which has explored a number of options when it comes to providing additional monetary support. Given the reaction to negative interest rates previously, it will be interesting to see whether the central bank will risk going further into negative territory or opt for more asset purchases, perhaps widening the assets available for inclusion under the program. This is all assuming the BoJ does in fact opt to loosen monetary policy this month, something the BoE and ECB have already opted against due to a lack of data following Brexit.

The Fed on the other hand is extremely likely to stand pat this month, most likely citing Brexit and the lack of data as the reason for doing so. The U.S. economy has continued to perform well and the labour market bounced back strongly in June which may lead the Fed to reaffirm its intention to raise interest rates this year, while highlighting the number of downside risks to their forecasts.

Today is looking a little quieter though from a news flow perspective. The German IFO business climate number was better than expected and may be lifting sentiment in Europe so far. The U.S. session will be dominated by earnings, although only eight S&P 500 companies are due to report today.

For a look at all of today’s economic events, check out our economic calendar.

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