Three meetings will dominate markets this week: the U.S.-North Korea summit, and the meetings of the Federal Open Market Committee (FOMC) and the governing council of the European Central Bank (ECB), Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
“After a stellar earnings season, the market will redirect its focus, and headlines could sway it one way or another,” Krosby said.
The historic U.S.-North Korea summit will garner worldwide coverage and a positive market response should be forthcoming if talks are set to continue. A negative reaction will be felt if there’s an abrupt shutdown of the summit.
“If talks break down and both parties walk away, take a look at gold and stocks in the defense sector—those are likely to rise,” Krosby said. “Most analysts are expecting that the U.S. and North Korea will continue talks.”
If not for the summit, the ECB and FOMC meetings this week would be the focus of investors. The implications for markets—including equities, currencies and credit—are important.
“There have been comments coming from ECB officials suggesting that they’ve got to think about ending their quantitative easing program,” Krosby said. “The market will decide whether they’re being hawkish or more dovish, and that will have an impact on the euro and U.S. dollar.”
Key inflation data, the Consumer Price Index (CPI) and the Producer Price Index (PPI), will be released this week and will play a key role in the Fed’s assessment of inflationary pressures. The Fed’s two-day meeting will be followed by a press conference where every word will be parsed for meaning.
“What the market wants to assess is whether Federal Reserve Chair Jerome Powell sees a fourth rate hike this year,” Krosby said. “If he introduces in his comments that the Fed is watching events in Europe, especially regarding Italy, this could mean that the Fed is a little more cautious about raising rates and perhaps they’re worried about global financial conditions tightening.”
China-related headlines will flare up as U.S. tariffs are expected to be placed on a list of Chinese products. The tariffs are scheduled to go into effect by Friday.
This week’s important economic data:
Tuesday: Consumer Price Index (CPI), NFIB Small Business Survey
Wednesday: Producer Price Index (PPI), FOMC meeting statement, Federal Reserve Chair Jerome Powell press conference
Thursday: ECB decision and ECB president Mario Draghi’s press briefing, Retail Sales
Friday: Industrial Production, Consumer Sentiment
Read Quincy Krosby’s full Q2 Market Commentary: Regime Change.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.