However,
investors have already priced in the positive news and so it came as no
surprise. In fact, the surprise was in some of the big tech earnings results,
in particular, Facebook, Twitter, and Intel, which led to declines of more than
2.4% on the Nasdaq Composite Index on Thursday and Friday. The disappointing
guidance from these big tech firms followed poorly received results from
Netflix in the previous week, leading to the question whether FAANG stocks can
continue to drive equities higher in the coming quarters, or whether it’s time
to reassess their current valuations.
Earnings
announcements will continue this week, with more than 140 companies due to
report results. Apple will take the spotlight after the market closes on Tuesday, with its
sales forecast, dates for the next iPhone release, pricing and service momentum
expected to be carefully scrutinized by investors.
This
week is also packed with monetary policy decisions. The Federal Reserve, Bank
of England and Bank of Japan are all set to meet this week.
Although
all central bank decisions may lead to volatility in financial markets, the BoJ
may carry the most significant influence when it announces its latest monetary
policy decision on Tuesday. This is because several reports have indicated that
the central bank is considering tweaks to its stimulus program.
The
10-year Japanese government bond yields hit 0.11% today, their highest level
since January 2017, as investors began pricing in an expected change in BoJ’s
yield curve control policy which was implemented to keep yields at 0%. A shift in this policy will not only lead to a spike in Japanese bond yields
but it will also have a global effect that will lead to further tightening in
credit conditions. However, we think there’s a higher chance that the BoJ will
not make any significant changes on this front and will instead try to calm
markets, by bringing the 10-year JGB’s back to 0%. If this is true, expect
USDJPY to strengthen again toward 113.
The
Federal Reserve, which meets on Wednesday, is expected to leave policy
unchanged. Many traders want to know whether Trump’s criticism of the Fed will
lead to a change in language; we believe there will be no change in guidance
and the Fed will continue sending the message that more rate hikes are on the
way.
The
BoE is the only major central bank that is expected to raise rates on Thursday,
but the recent fall in inflation levels and continued Brexit drama have led
some market participants to believe the central bank will delay this action.
However, I think the BoE will deliver a 0.25% rate hike and hint that it’s the
only one expected for 2018.
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