Investors under pressure: A worrying scenario for tech giants
The tech giant reporting season is causing a stir in the markets, as Deutsche Bank executives highlight the rigorous scrutiny of company profits and concerns over massive capital expenditures.
According to Deutsche Bank executives, global markets ended July balancing between solid underlying economic growth and geopolitical risks, as well as a more rigorous examination of profit expectations for artificial intelligence companies.
Although the US GDP figure for the second quarter was disappointing in the headlines, strong domestic demand and the negative impact of imports made the detailed picture more encouraging. In Europe, growth stronger than expected in the Eurozone strengthened confidence in economic activity, partly thanks to investments in the field of artificial intelligence and government spending. At the same time, investors have become more selective in choosing leading technology stocks.
High energy prices have added a measure of uncertainty to inflation forecasts and may cause central banks to continue a cautious policy, although economies today are less dependent on oil than in the past.
The reporting season remains the central anchor of the markets: almost 70% of companies in the S&P 500 and STOXX Europe 600 indices (by market cap) have already published reports, with 85% of S&P 500 companies and 60% of STOXX Europe 600 companies beating analyst forecasts. However, the bar set for leaders in the AI field has risen significantly, and investors are examining whether high capital expenditures will indeed translate into stable growth in revenues, profit margins, and cash flow.
At the same time, the decline in oil prices, against the backdrop of expectations for the opening of peace talks, reduced immediate concerns in the energy sector, but investors' attention remains focused primarily on company reports and labor market data. Strong employment data may keep bond yields at high levels, while a weak but orderly report may support the bond market and interest-rate-sensitive stocks. Markets will also monitor the foreign exchange market, following reports of joint intervention by the USA and Japan to support the yen.
USA: Labor market in focus
The labor market will be the main focus this week, as investors examine a series of economic data with the aim of assessing the pace of growth and the state of hiring in the economy. On Monday, the Manufacturing Purchasing Managers' Index (ISM) is expected to improve slightly to 54.5 points, compared to 53.3 in the previous month, indicating continued expansion of industrial activity.
On Tuesday, the JOLTS report will be published, with the number of job openings expected to fall to 7 million compared to 7.5 million in the previous month, which may indicate some moderation in the demand for workers. On the same day, the trade balance for June will be published, with the deficit expected to narrow from 78 billion dollars to 67 billion dollars.
On Wednesday, the ADP employment report is expected, with the number of new jobs in the private sector expected to fall to 75 thousand compared to 98 thousand in the previous month, reinforcing the assessment that the labor market continues to cool gradually.
The week will end on Friday with the publication of the official employment report (Nonfarm Payrolls). The market consensus expects an addition of 65 thousand jobs, after an increase of 57 thousand in June, while the unemployment rate is expected to remain unchanged at 4.2%.
In addition, investors will monitor consumer credit data for June, which is expected to recover to a level of 10 billion dollars, after a slight decrease of 180 million dollars in the previous month. The bottom line: this week's data is expected to provide a clearer picture regarding the resilience of the US labor market and the continuation of the economy's growth trend.
