In Asia-Pacific markets on Monday, Hong Kong's Hang Seng Index gained more than 2%, while US stock index futures were modestly higher early on Monday morning after a positive weekly end. So, European stocks are expected to gain modestly on Monday, following the global trend. However, Italy would be an exception due to political uncertainty.
This week, corporate earnings take centre stage in the markets. In light of the less economic data in the US, companies such as Tesla, Netflix, Verizon, J&J, and Bank of America reporting earnings may have a more significant impact after the CPI overshoot and subsequent Federal Reserve back and forth over the size of the next interest rate hike overshadowed last week's banks' earnings. After the upside inflation surprise, the European Central Bank will announce its interest rate decision on Thursday. Markets will also watch several CPI reports, which will be released this week. Also, Asian markets are closely monitoring Wednesday's meeting of China's central bank and Thursday's meeting of the Bank of Japan.
Since China does not face imminent or heightened inflationary pressures, policymakers can maintain an easing bias to support the recovery. Likewise, there is no change expected from the BOJ, which will hold its ultra-easy monetary policies, further hurting the yen.
The short-term upside for EUR/USD
With the US dollar moving lower from its multi-year highs, EUR/USD is forming a Rising Wedge pattern that indicates a gradual rise but has a negative bias on a broader basis given gas prices rising, inflation remaining elevated, and growth data softening across the Eurozone.
ECB rate hike
A meeting of the European Central Bank is scheduled for Thursday, in which the bank is expected to raise interest rates for the first time in a decade. ECB's decision has been the subject of plenty of news, whether it's the drama in Italy surrounding Mario Draghi's attempted resignation or the Euro flirting with parity with the dollar. More data will be released before the meeting, with Eurozone CPI numbers due on Tuesday. Besides ECB President Christine Lagarde's press conference and the interest rate decision, the meeting will likely shed light on the bloc's new tool for controlling country-level bond yields.
UK CPI and employment data
In the UK, a CPI report is due on Wednesday, and employment data is due on Tuesday. Substantial employment numbers and/or high CPI numbers might press the Bank of England to accelerate its rate hike pace at its next meeting in three weeks. However, the BoE has been raising rates steadily at a 25 basis point this year.
These data releases occur after television debates of the leading candidates to succeed Boris Johnson as the leader of the Conservative Party and prime minister of the United Kingdom. Although Johnson's resignation has nothing to do with the economy, the new Prime Minister will be expected to address inflation as one of his top priorities.
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