This week saw the unofficial kick-off of the second quarter earnings season. Over the next month or so, most major global corporations will report to their shareholders on the results of the last quarter and the first half of the year. This provides an essential amount of colour for how the economy is performing. Forex markets will inevitably be influenced by major trends that emerge from the avalanche of corporate reports.
This earnings season arrives at a particularly crucial time, which could have a significant impact on the markets. Traders are closely monitoring the trade war’s impact on the economy. The dollar has been strengthening lately, driven by expectations that the Fed will keep rates higher than previously thought due to inflationary pressures. But traders can gain a better understanding of the dynamics as consumer behaviour is revealed in detail by major retailers and banks.
The Economy in Focus
It’s not just the US, of course. The British economy is providing a headache for the BOE. Inflation remains high, but the economy is sluggish. UK businesses were slapped with new taxes at the start of the quarter. The upcoming earnings reports provide an opportunity for businesses to express how the Budget has affected their outlook.
The BOE has repeatedly stated that it believes the economy is showing signs of slack. If British businesses see underperformance in sales and profits, that could be confirmation of that trend. This could leave the BOE more inclined to ease at the August meeting. On the other hand, if business reports solid growth and the ability to pass increased costs on to consumers, then the BOE might not be so pressured to ease monetary policy just yet.
Europe Finally Returns to Growth?
The Euro gained substantially in the first half of the year as traders looked for better returns on their investments. A series of spending announcements in Europe left investors with the impression that European assets would perform better, and they bought up a bunch of Euros. The question now is whether businesses are actually experiencing profit growth to justify the increase in their stock prices.
Not only that, they have to provide guidance to keep satisfying investors that there is still future growth. After European indices hit record highs, traders might think the rally has run its course and start selling Euros, pulling down the EURUSD in the process.
Demand Profiles and Gold
After settling down following geopolitical risks in June, crude prices have largely weathered the effects of increasing production, given low inventories and expected solid demand. However, that demand is based on the expectation that major economies, such as the US and China, will continue to perform.
Traders will be closely monitoring banks, retail companies, and transportation firms to gauge whether these two major economies will continue to grow amid the trade war. That is, unless there is significant progress in trade negotiations, since the August 1st deadline falls in the middle of earnings season.