Market news today – stocks rally on hopes of a rate cut

The The quarterly reality check kicks off this week as we find out what companies have to say about their earnings outlook for the rest of the year.

Revenue Season

It’s still early days, with only about 30 of the largest US companies having released their second quarter results. The good news is that more than 20 of them exceeded expectations. It’s a good start, but the bar remains high, with earnings expected to grow 10% for all of 2022 in the face of a slowing economy. There is no room for disappointment.

Banks kicked things off last week and, as expected, set aside more money as a provision against possible bad debts. This week, attention widens with early news from the all-important tech sector, as Netflix, Tesla and Twitter update investors.

Central bank monitoring

Earnings are the main long-term driver of stock prices, but in the shorter term, it’s sentiment that matters. And nothing determines market sentiment more than the outlook for interest rates. On either side of the weekend, speculation mounted that the Fed, in particular, might not be able to maintain its current tightening path for long. Interest rates are expected to peak early next year at 3.5%, then fall rapidly as the Fed shifts its focus from tackling inflation to supporting growth. This is good news for investors and has helped stabilize markets on both sides of the Atlantic.

The key to what’s happening with interest rates is the outlook for inflation and this week we should have good information on where prices are headed. As in the US, prices are rising at an uncomfortable speed on both sides of the Channel and this week in the UK the CPI is expected to hit a new multi-year high of 9.3%. This could encourage the Bank of England to raise interest rates by 0.5% at the next meeting of its rate chiefs on August 4. The ECB meanwhile pre-committed to a 0.25% hike on Thursday, but left the door open for a faster rate of change in September if inflation still looks too high.

red flags

One reason central banks may err on the side of caution when it comes to raising rates over the summer is the way a key measure of the economy’s health is currently flashing red. . The price of copper is sometimes described as Dr. Copper for the way it acts as a barometer of economic activity around the world. Copper is used in various ways in construction, the manufacture of electrical appliances and as a key element in the energy transition, from wind turbines to electric vehicles. So the fall in price from a March high of $10,600 a tonne to briefly below $7,000 last week is a clear indicator that investors see a downturn ahead.