Fed Confident in Rate Cuts, Focus This Week on Earnings Season

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　　The US inflation data released last Thursday exceeded expectations, increasing the Federal Reserve's determination to cut rates, including Powell.

Better-than-expected US inflation data

　　According to the latest report from the US Bureau of Labor Statistics, the Consumer Price Index (CPI) declined by 0.1% from May, helping to lower the inflation rate from 3.3% in May to 3%, the lowest annualized rate since June 2023. The declines in both overall and core CPI indicate that inflation is moving in the right direction.

　　The Fed is confident in this data, with Federal Reserve officials, including Chairman Powell, showing unprecedented confidence in recent public appearances, extensively discussing their strategies and determination in controlling inflation and adjusting monetary policy.

　　While the Fed has not yet specified when or the extent of rate cuts, their remarks clearly indicate that the timing for rate cuts is nearing. Market traders and economists generally expect the first rate cut to be implemented in September.

　　Since July last year, the Fed has kept the benchmark policy rate at its highest level in 23 years, ranging between 5.25% and 5.5%.

　　Last Friday, Charles Evans, president of the Federal Reserve Bank of Chicago, said, “With inflation declining, real interest rates are becoming tighter, and we will maintain this tightness when necessary. If conditions allow, we hope to return to more normal interest rate levels.”

　　Earlier, Powell testified before Congress, stating that the Fed has made significant progress in controlling price pressures, and the labor market also shows clear signs of cooling, thus no longer seeing inflation as a primary concern. However, the Fed faces two-way risks and must be more vigilant against the potential excessive damage high rates could cause to the job market.

Key data this week

　　This Tuesday, continue to focus on Fed Chairman Jerome Powell's interview with David Rubenstein of the Economic Club of Washington, D.C.

　　In recent congressional testimony, Powell emphasized the central bank's efforts to address inflation and reaffirmed its commitment to achieving its dual mandate. He has shown a cautiously optimistic attitude towards inflation trends, but there are still some doubts about whether inflation rates can sustainably decline to the 2% target.

　　This week, Fed governors Kuggel and Waller will respectively speak on economic prospects, with Wednesday's spotlight on their discussions. Meanwhile, FOMC 2024 voting member and Richmond Fed President Bostic will also participate in speeches, providing insights to the market.

　　Friday's activities are more diverse: FOMC 2024 voting member and San Francisco Fed President Daly will participate in fireside chats; FOMC permanent voting member and New York Fed President Williams will speak on monetary policy; FOMC 2026 voting member and Dallas Fed President Logan will deliver opening remarks at an event; additionally, Fed Governor Bowman will also give a speech.

　　The earnings season also enters its first full week, with Goldman Sachs, BlackRock, and other companies leading by releasing their earnings reports on Monday. Subsequently, other companies including Bank of America, Morgan Stanley, ASML, and Netflix will also sequentially announce their performance reports. This is expected to be a robust earnings season, but investors need to be aware that the performance of many companies may already be reflected in current stock valuations.

　　On the other hand, TSMC will announce its second-quarter earnings on Thursday, July 18. According to the company's latest sales data, second-quarter sales increased by 40.1% year-on-year, exceeding the average expected growth rate of 36%. It is expected that second-quarter net profit will increase by 29% year-on-year, with earnings per share expected to reach $1.4, higher than the first quarter's $1.34. Institutions such as JPMorgan and Morgan Stanley expect TSMC to possibly raise its full-year sales forecast, further supporting the company's valuation expansion. Investors will also closely monitor TSMC's views on the semiconductor market recovery and trends in artificial intelligence demand.

　　Finally, the final data for the Eurozone's June Consumer Price Index (CPI) will be released on Wednesday, July 17. Preliminary data shows that the year-on-year inflation rate for services reached the highest level in June, matching May's level. Wall Street expects the European Central Bank to be less likely to continue cutting interest rates in July, depending on the speed of the service sector inflation decline. Earlier, some senior officials of the European Central Bank, including President Lagarde and Chief Economist Lane, expressed cautious attitudes towards further interest rate cuts.