Report by Renta 4
Higher opening (Eurostoxx futures up 0.8%, S&P up 0.9%, Nasdaq up 1.5%), reflecting the pause in US attacks on Iran since last Friday, which has allowed Brent to fall to $92 per barrel (down 10% from the high of $102 per barrel reached last Thursday), a fall in energy prices that is allowing yields to ease (T-bonds down 6 basis points and Bunds down 3 basis points) and gold to recover slightly (up 1%);
Although recent events have allowed for a relief rally, we are facing a fragile lull, not a definitive ceasefire (Trump claims to be “ready and loaded”). Meanwhile, the Houthis are continuing their attacks on facilities linked to Saudi Aramco in Jizan and Yanbu. Iran will meet again with Oman to discuss the situation in the Strait of Hormuz.
This week will be packed with key events, notably the central bank meetings (the Fed on Wednesday, the Bank of England on Thursday, and the Bank of Japan on Friday) and a huge flurry of corporate results (including the US hyperscalers), whilst keeping a close eye on the situation in the Middle East and developments in the Strait of Hormuz (further escalation between the US and Iran or a diplomatic rapprochement?), with direct implications forenergy prices (particularly against a backdrop of low global reserves) and, by extension, for monetary policy expectations at the major central banks.
In the case of the Fed, we expect it to keep rates at 3.5%–3.75%, although the changes being made by Kevin Warsh (less transparency, scrapping ‘forward guidance’) are confusing the market, which assigns a 32 per cent probability to a 25 basis point rise this week. We would point out that the ‘dot plot’ remains in place (albeit without Warsh’s ‘dots’) and that it points to one rate rise this year (9 of the 18 FOMC members project this), and that the new Chair’s recent tone on inflation has been ‘hawkish’, showing no willingness to tolerate inflation above target. In this regard, although the June CPI figure moderated more than expected due to the fall in oil prices from their highs following the signing of the US-Iran MoU, the current situation in the Middle East (the threat of a double bottleneck: the Strait of Hormuz and the Red Sea) has triggered a further surge of around 30 per cent in oil prices from the lows seen in early July. This calls for continued caution and a hawkish stance in the fight against inflation. The market is fully pricing in a 25 bp hike in September and a further 25 bp hike in Q1 2027.
As for the Bank of England and the Bank of Japan, the context is the same, and we do not expect any changes to policy rates, which will remain at 3.75% and 1% respectively. In the case of the UK, the market is pricing in a 25 bp rise after the summer and two further rises thereafter (25 bp at the end of 2026–early 2027 and an additional 25 bp in Q2 2027), whilst for Japan, just one rate rise by the end of the year is expected, although it cannot be ruled out that this might be brought forward (September, October?) if the weakness of the yen continues to add to inflationary risks.
As regards the results of the hyperscalers, the figures from Microsoft and Meta (both on Wednesday) and Amazon (Thursday) will be key to determining whether the high capital expenditure on AI is generating returns, in a market that is increasingly demanding the monetisation of investments rather than mere spending guidance. In this regard, the results already presented by Alphabet last Wednesday have provided an early indication, but Microsoft (Azure) and Amazon (AWS) will deliver the definitive verdicts on whether or not the acceleration in cloud computing and AI is genuine. Apple will also report its results (on Thursday).
As for how the earnings season is unfolding, as of last Friday 27 per cent of S&P 500 companies had reported, of which 86% have beaten the consensus EPS forecast (against a 5-year average of 78% and a 10-year average of 76%) by 39.3% (against a 5-year average of 7.3% and a 10-year average of 7.1%), and by 12.6% excluding Alphabet. Based on the companies that have reported to date and the pending estimates,
EPS up 37.9% year-on-year (up 25.9% excluding Alphabet), which, if sustained, will represent the highest earnings growth rate recorded by the index since Q3 2021 (up 40.3%), the second consecutive quarter of earnings growth above 20% and the seventh consecutive quarter of double-digit growth. In terms of revenue, 80% of those that have reported have beaten estimates (compared with a 5-year average of 70% and a 10-year average of 67%) by 2.8% (compared with a 5-year average of 2% and a 10-year average of 1.5%).
Furthermore, in Spain, the earnings season will conclude with results from Línea Directa, Neinor Homes and Elecnor (Monday), Arteche, Merlin Properties, Elecnor, Renta 4 Banco, Ferrovial and Grifols (Tuesday), Aena, Redeia, Ebro Foods, ACS, HBX Group, Endesa, CaixaBank, Telefónica and Viscofan (Wednesday), Cellnex Telecom, DIA, Fluidra, Cirsa Enterprise, Faes Farma, Técnicas Reunidas, CAF, ArcelorMittal, InSur, BBVA, Prosegur Cash, Meliá Hotels and Puig (Thursday) and Amadeus, IAG, Prosegur and Unicaja Banco (Friday).
As regards macroeconomic data, we are set for a week packed with key figures, including the following highlights: in the United States, the June core private consumption deflator (3.3% estimated against 3.4% previously),
the Conference Board’s consumer confidence survey for July (92.3 estimated against 91.2 previously), with its current conditions (116.4 previously) and expectations (74.4 previously) components, the annualised second-quarter GDP (2.3% estimated against 2.1% previously) and the University of Michigan’s consumer confidence survey (final reading).
In Europe, we will be paying particular attention to Germany’s IFO survey for July (86 estimated against 85.6 previously), as well as the preliminary GDP figures for the second quarter in Germany (0.6% estimated quarter-on-quarter against 0.4% previously), Italy (0.8% previously), France (0.9% previously) and Spain (2.7% previously). We will also have July CPI data for Spain, covering both the headline rate (previous: 3.2%) and the core rate (previous: 2.9%), as well as figures for France (previous: 1.8%) and the Eurozone, covering both the headline rate (estimated: 2.8% against previous: 2.8%) and the core rate (estimated: 2.4% against previous: 2.4%).
Finally, in Asia, we will have the Tokyo CPI for July in Japan, both the headline rate (1.8% estimated against 1.7% previously) and the core rate (2.0% estimated against 1.9% previously), as well as the July PMIs in China: the manufacturing PMI (50.0 estimated against 50.3 previously), Services PMI (50 estimated against 50.2 previously) and Composite PMI (50.6 previously).
Against a complex macroeconomic backdrop (inflationary risks), with upward pressure on interest rates hampering the expansion of stock market multiples, the stock markets will have to justify their valuations strictly on the basis of second-quarter corporate earnings. The guidance provided by executives will be decisive.
We believe the market continues to show some optimism, assuming a ‘soft landing’ scenario and an imminent pause in interest rates.
However, the risk of a resurgence of tensions in the Strait of Hormuz, which will shape the future trajectory of inflation and thus monetary policy decisions,along with uncertainties surrounding AI and the arrival of Kevin Warsh at the Fed with the aim of establishing new “rules of the game”, may be underestimated. Volatility is not a temporary phenomenon this week; it is the new normal for the rest of 2026.
