Risk-off sentiment may continue to shape market trends following a turbulent week. Novo Nordisk’s earnings will be in the spotlight as investors gauge the growth trajectory of Europe’s largest company.
Following Friday’s sharp sell-off in global markets, risk-off sentiment may continue to dominate market movements. However, investors might get a reprieve as economic data is relatively light this week. In Europe, major economies will release their final service PMIs, offering more insights into the region’s inflation trajectory. Additionally, Novo Nordisk, the largest European company, is set to report quarterly earnings alongside its US competitor, Eli Lilly.
Several major trends in the financial markets are worth noting: The euro strengthened against the dollar on Friday, being seen as a haven currency. Equities, particularly technology shares, experienced sharp declines. Global government bond yields fell sharply due to growing expectations for central banks to deliver more rate cuts. Commodity prices rose, buoyed by a softened US dollar.
Elsewhere, China is scheduled to release its Consumer Price Index (CPI) for July. The Reserve Bank of Australia (RBA) will also decide on its interest rate, offering further clues on the rate path of major central banks.
Europe
The market focus will remain on the earnings front as Europe’s largest company, Novo Nordisk, is set to report its second-quarter earnings, with its sales of weight-loss drugs, Ozempic and Wegovy, in the spotlight. Analysts expect the company to continue growing by double digits, exceeding 20% year on year. Investors will also monitor earnings from the Italian bank Banca Popolare di Sondrio, the British retailer Domino’s Pizza, and the Swiss mining giant Glencore.
On the economic front, major economies, including Spain, France, and Germany, are set to release their final service PMIs for July, with expectations that these countries’ service activities will remain in expansion. However, elevated prices in the service sector continue to drive inflation. The euro area’s retail sales for June are also due for release this week. Consensus suggests the data will show a 0.2% sequential decline after a 0.1% increase in May. Sales of food and fuel rose in May, while non-food sales decreased. Moreover, Germany will release its industrial production and trade balance data for June, providing insights into the country’s manufacturing activities. Industrial production is expected to return to month-on-month growth after three straight monthly contractions.
The US
Following quarterly results from tech giants, the US earnings season will continue with major electric car makers and pharmaceutical firms, including Lucid Group, Rivian, Eli Lilly and Co., and Gilead Sciences. The entertainment giant Walt Disney is also set to report its second-quarter earnings.
On Wall Street, government bond yields sharply fell following last Friday’s job data, further intensifying the selloff in global markets. The US dollar softened significantly amid growing bets that the Federal Reserve will deliver three interest rate cuts this year. With the yield spread between the 2-year and 10-year Treasury notes narrowing close to zero, markets are increasingly concerned that an economic recession could be near.
On the economic front, the US will release its ISM service PMI for July. Consensus forecasts suggest the data will return to expansion from a contraction in the previous month. However, a weaker-than-expected reading could exacerbate investors’ recessionary fears.
Asia Pacific
China’s CPI and Producer Price Index (PPI) for July will be in the spotlight this week. While major Western economies have been facing inflationary pressure, China is encountering deflation issues due to sluggish domestic demand. However, data showed that annual inflation increased for the fourth consecutive month in June. Consumer prices are expected to continue rising at a 0.3% year-on-year growth rate in July. Meanwhile, the factory gate price, the PPI, may extend its negative growth, a trend persisting since October 2022, although the price drop in June was the softest since January 2023.
The Reserve Bank of Australia’s (RBA) rate decision will be critical for the local stock markets and the Australian dollar. The bank is expected to keep the official cash rate on hold at 4.35% as inflation remains sticky. The annual CPI was recorded at 3.8% in June, down from 4% in the previous month. However, this level is still well above the targeted 2%.
