Global markets all eyes on ECB's interest rate decision

While a positive trend was observed in global markets this week due to data indicating that consumer inflation in the US has slowed and expectations that the Bank will start cutting interest rates this year following statements by US Federal Reserve (Fed) Chairman Jerome Powell, all eyes turned to the interest rate decision to be taken by the European Central Bank (ECB). The data released in the US reinforced the view that the disinflation trend is back on track, increasing expectations that the Fed will start cutting interest rates soon. Analysts stated that the ECB's interest rate decision will be the focus of the markets next week, and said that the Bank is not expected to make any changes to its monetary policy, but uncertainties regarding the upcoming period in monetary policy continue. The Consumer Price Index (CPI) in the US decreased by 0.1 percent on a monthly basis in June, while increasing by 3 percent on an annual basis, falling below market expectations. While the CPI decreased for the first time since May 2020 on a monthly basis, annual inflation also fell to its lowest level in the last year. Core inflation fell to 3.3 percent on an annual basis, the lowest level since April 2021, while the number of people applying for unemployment benefits for the first time in the country fell short of estimates at 222,000 in the week ending July 6. On the other hand, consumers' short-term inflation expectations in the country decreased by 0.2 points to 3 percent in June. According to the Fed's data, consumer loans increased above expectations with $11.3 billion in May. The Producer Price Index (PPI) in the US increased by 0.2 percent on a monthly basis and 2.6 percent on an annual basis in June, above expectations. The annual increase in producer prices reached the highest level since March 2023. Statements by Fed Chair Jerome Powell also strengthened expectations that the Bank may start cutting interest rates towards the end of the year. Powell stated in his presentation to the US Congress regarding the semiannual Monetary Policy Report that he has “some confidence” that inflation is trending down but is “not yet ready” to say that he is sufficiently confident that it has fallen to 2% sustainably. Responding to questions regarding the Fed’s balance sheet, Powell stated that the bank has already reduced its balance sheet size by approximately $1.7 trillion. Powell stated that they have “made considerable progress” in reducing the size of the balance sheet and said, “We think we still have a ways to go.” Analysts stated that risk appetite increased in equity markets following Powell’s statements. St. Louis Fed President Alberto Musalem also said that the process of decreasing inflation is continuing but that he wants more evidence that it is moving towards 2%. While the possibility of the Fed making its first interest rate cut in September has become stronger in pricing in money markets, the possibility of 3 interest rate cuts by the end of the year has been included in pricing. With these developments, the US 10-year bond yield closed the week down 9 basis points to 4.19 percent. The ounce price of gold increased by 0.8 percent to $2,411.4. The dollar index closed the week at 104.1, 0.7 percent below the previous week. The barrel price of Brent oil also decreased by 2.3 percent to $84.5. New York Stock Exchange had a positive trend The New York Stock Exchange had a positive trend this week as expectations that the Fed would begin cutting interest rates in September remained strong. The Nasdaq index increased by 0.24 percent, the Dow Jones index by 1.58 percent, and the S&P 500 index by 0.86 percent. On the other hand, Nvidia's shares gained 2.70 percent, Apple's shares gained 1.85 percent, Microsoft's shares lost 3 percent, Alphabet's shares lost 2.70 percent, and Meta's shares lost 7.60 percent. Delta Air Lines, which announced low revenue expectations for the third quarter in its financial results, lost 5.21 percent, while Tesla's shares fell 1.30 percent after news appeared in the US media that the introduction of Robotaxi had been delayed by 2 months. Among the major US banks that have started to announce their second quarter balance sheets, JPMorgan Chase's net profit increased by 25 percent annually in the second quarter of this year, and Citigroup's net profit increased by 10 percent. Wells Fargo's profit decreased by 1 percent in the same period. This week, JPMorgan Chase's shares increased by 0.07 percent, Citigroup's shares increased by 0.76 percent, while Wells Fargo's shares decreased by 5.16 percent. In the US stock markets, the New York Fed industrial index will be followed on Monday, retail sales on Tuesday, the Fed Beige Book report, industrial production, capacity utilization, housing starts and building permits on Wednesday, and weekly unemployment claims and the Philadelphia Fed manufacturing index on Thursday. European stock markets were mostly buying, while European stock markets were positive. Analysts pointed out that there were mixed signals from the region regarding economic activity. ECB Supervisory Board member Elizabeth McCaul warned in an interview with the Financial Times that risks regarding shadow banking were increasing. Portugal Central Bank President and ECB member Mario Centeno also stated that the latest inflation data increased confidence, saying, "If the basic scenario is confirmed, I continue to expect a few more rate cuts this year." Bank of England (BoE) Chief Economist Huw Pill said in a statement that the timing of the BoE’s rate cut was still “an open question”, weakening expectations in money market prices that the Bank would cut interest rates in August. The effects of the increasing political uncertainty following the general elections in France are also continuing. International credit rating agency Moody’s also stated that the election results in France had a negative impact on the country’s credit rating, and that a grand coalition to be formed following the victory of the New Popular Front in France would make the task of decision-making and debt reduction even more difficult. Following the slowdown in inflation in the US, the British pound rose to its highest level in a year against the dollar, drawing attention. After it was considered certain that the Fed would cut interest rates in September, the pound/dollar parity, which tested its highest level since July 2023 at 1.2992, closed the week at 1.2987, up 1.47 percent. The Euro/Dollar parity closed the week with a 0.62 percent increase at 1.0908. On the other hand, while inflation in Germany was in line with expectations at 0.1 percent monthly and 2.2 percent annually in June, it was noteworthy that the UK exceeded expectations with a 0.4 percent monthly growth in May. Industrial production in the UK remained below expectations with a 0.2 percent monthly and 0.4 percent annual increase in the same period. With these developments, the FTSE 100 index in the UK increased by 0.60 percent, the CAC 40 index in France by 0.63 percent, the MIB 30 index in Italy by 1.74 percent and the DAX 40 index in Germany by 1.48 percent. Next week, industrial production in the Euro Zone will be followed on Monday, foreign trade balance in the Euro Zone on Tuesday, ZEW indexes in Germany, inflation in the Euro Zone and the UK on Wednesday, ECB interest rate decision and unemployment rate in the UK on Thursday, and PPI data in Germany on Friday. Asian stock markets rose except for South Korea. Asian markets, except for South Korea, showed a positive trend this week. News flow regarding when and how much the Bank of Japan will reduce its bond purchases is the focus of investors. The dollar/yen parity closed the week with a 1.87 decrease to 157.90. As unionized employees at Samsung, based in South Korea, continued their strike demanding improvements in fringe benefits and salaries, the company's shares lost 3 percent of their value. Following the news flow regarding Hyundai Motor's temporary wage agreement with the labor union and preventing the strike, the company's share price decreased by 3.40 percent. The Central Bank of South Korea kept the policy rate unchanged at 3.50 percent in its 12th consecutive meeting. According to the statement made by the bank, the decision was made not to change the policy rate as more evidence is sought that inflation will continue to fall. In China, the CPI decreased by 0.2 percent monthly in June and increased by 0.2 percent annually, falling below expectations. Analysts stated that the data in question indicated that economic activity in the country continued to slow, and that the risk of deflation remained high in the country. Japan's foreign trade surplus in May exceeded expectations at 2 trillion 850 billion yen. In Japan, the Nikkei 225 index, which broke a record by exceeding 42 thousand points this week, gained 0.68 percent, the Hang Seng index in Hong Kong gained 2.77 percent, the Shanghai Composite Index in China gained 0.72 percent, and the Kospi index in South Korea lost 0.19 percent. The stock market completed the week with records Domestically, the BIST 100 index at Borsa Istanbul completed the week with a 1.96 percent gain at 11,064.85 points, achieving its highest daily and weekly closing of all time, while breaking its highest level record at 11,113.55 points. On the other hand, the Governor of the Central Bank of the Republic of Turkey, Fatih Karahan, who made a presentation at JP Morgan's investor meeting, stated that the decrease in domestic swaps strengthened the monetary transmission mechanism and said, "There is a growing consensus that inflation will decrease in the second half of the year." Central Bank Deputy Governor Cevdet Akçay also said in his presentation, "Our tight monetary policy stance increased TL savings and helped anchor inflation expectations." Central Bank Deputy Governor Hatice Karahan said, "The output gap, while still in the positive area in the second quarter of the year, exhibited a decrease. We anticipate that the deficit will switch to negative territory in the second half of the year." According to the data of the Central Bank of the Republic of Turkey, the current account had a deficit of 1 billion 235 million dollars in May 2024. While the annualized current account deficit decreased to 25 billion 191 million dollars in May, the last 1-year improvement in the annualized current account deficit indicated 31 billion 831 million dollars. Dollar/TL completed the week at 33.0496, 1.17 percent above the previous close. Analysts stated that the budget balance will be monitored on Tuesday next week, housing sales on Wednesday, and the expected Turkey assessment by the international credit rating agency Moody's on Friday, and noted that from a technical perspective, 11,000 and 11,100 points are resistance in the BIST 100 index, while 10,800 and 10,700 are support levels.