Welcome to Michael Kramer’s pick of the top three market events to look out for in the week ahead.
US inflation will grab headlines on Wednesday with the release of the consumer price index (CPI) reading for May. The data should arrive in time to inform the US Federal Reserve’s interest rate decision as policymakers’ two-day meeting concludes that same day. Though rates are likely to be kept unchanged, the Fed may provide guidance on the likelihood of rate cuts in 2024. On the results front, technology company Oracle is set to report earnings on Tuesday, but the week’s real heavyweight is semiconductor and software giant Broadcom, which is due to announce second-quarter results on Wednesday.
US May CPI
Wednesday 12 June
The May CPI report is expected to show that the headline rate of inflation increased 3.4% year-on-year, flat compared to April. On a monthly basis CPI is expected to be up 0.1%, cooling from 0.3% in April. Meanwhile, core CPI, which excludes volatile items such as food and energy, is expected to have risen 3.5% in the year to May, easing from 3.6% in April.
In recent months, implied volatility has risen sharply before the CPI print, then crashed afterwards. This has given equity markets a post-CPI boost in the past. If shorter-dated implied volatility measures like the VIX 1-Day rise sharply the day or two before the CPI data is released, a sharp decline in implied volatility after the announcement could help propel the S&P 500 higher.
Federal Reserve interest rate decision
Wednesday 12 June
The Fed is expected to hold interest rates on Wednesday. The market is pricing in a 97.5% probability that policymakers will keep the benchmark rate unchanged at the current target range of between 5.25% and 5.5%, according to the CME’s FedWatch tool. That’s why all eyes will be on the Fed’s dot plot – projections which give the market a sense of when the Fed may start cutting rates. Currently, the most likely scenario is one or two rate cuts in 2024, with the first cut potentially coming in November and the second in December. However, expectations have fluctuated and could change again before the Fed meeting.
Despite market expectations of rate cuts, many Fed officials have talked about a higher neutral rate, saying the current policy stance may not be restrictive enough to return inflation to the Fed’s 2% target. This could make their dot plots more hawkish than in March.
It’s also worth keeping an eye on interest rate differentials between major central banks. On Wednesday the European Central Bank cut its main interest rate by a quarter of a percentage point to 3.75%, and ECB president Christine Lagarde delivered a hawkish press conference. Unless the Fed comes across as more hawkish than markets have priced in, there is a chance that the euro will continue to move higher against the US dollar, possibly towards $1.095. Then again, if the Fed were to outline a middle ground of one rate cut in 2024, EUR/USD could turn lower and head back to around $1.06.
Broadcom Q2 results
Wednesday 12 June
Analysts expect Broadcom to report fiscal second-quarter 2024 earnings of $10.82 a share, up 4.8% year-on-year, while revenue is expected to grow 38.1% to $12.1bn. Adjusted gross margin is forecast to come in at 75.9%. As ever guidance will be key, with analyst estimates suggesting that Q3 revenue will grow 43.3% to $12.7bn, as earnings rise 12.9% to $11.90 a share and adjusted gross margin widens to 76.3%.
Broadcom shares, widely seen by the market as an AI play, have risen more than 75% over the past year to $1,401.27, as of Thursday’s close. However, progress has stalled since mid-March, and the stock may need to clear resistance at $1,450 to open further upside potential. Currently, the market is pricing in a possible move of about 6.2% following the results, suggesting a potential upward move to around $1,490.
However, momentum has faded, and the charts show a rising wedge pattern with a bump and run, which tends to be a bearish formation. Additionally, implied volatility on options with a 14 June expiration is high and skewed towards price rises. Unless the company delivers outstanding results, the decay of implied volatility for calls may result in a lower stock price with support at around $1,190, based on the technical patterns.
Key economic and company events
Here’s our rundown of notable economic announcements and company reports scheduled for the coming week:
Monday
• Eurozone: June Sentix investor confidence survey
Tuesday
• UK: April unemployment rate, employment change, average earnings
• Results: First Group (FY), Oracle (Q4)
Wednesday
• China: May consumer price index (CPI)
• Germany: May CPI
• UK: April gross domestic product (GDP), industrial and manufacturing production
• US: May CPI, Federal Reserve interest rate decision
• Results: Broadcom (Q2), Casey’s General Stores (Q4)
Thursday
• Australia: May unemployment rate, employment change
• US: May producer price index (PPI)
• Results: Adobe (Q2), Fuller Smith & Turner (FY)
Friday
• Australia: June consumer inflation expectations
• France: May CPI
• Japan: Bank of Japan interest rate decision
• UK: Consumer inflation expectations
• US: June preliminary Michigan consumer sentiment index
• Results: Tesco (Q1)
Note: While we check all dates carefully to ensure that they are correct at the time of writing, the above announcements are subject to change.
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