FUNDAMENTAL REVIEW FOR THE WEEK (22 - 26 July 2024)

Financial week reopens with a focus on politics. The day before, current US President Joe Biden announced that he was withdrawing from the presidential race. However, this did not make the task easier for investors, quite the contrary. Adjusting a personal portfolio for an election has become more complex as it is now necessary to hedge against various additional variables before an election. One of these will be the choice of the final candidate from the Democratic Party.

Democrats will announce their party leader at the convention Aug. 19-22, and there's a chance that if upcoming polls show poor results for current front-runner Kamala Harris, the nominee could change. However, this scenario is considered extremely unlikely. For now, the most prudent approach, in our view, is to focus on economic reports and gauge monetary sentiment within the Fed at its July 31 meeting.

This week, before the meeting on July 31, as is customary - a "period of silence" - Fed members will not make public statements on economic issues and monetary policy. If we talk about the latest messages from the Fed, its representatives emphasized the need for positive economic reports to achieve the target inflation level. Friday's US PCE inflation report will have a strong impact on Powell's July 31 rhetoric. In addition, important indicators will be released on Thursday - US GDP for the second quarter.

Publicly, members of the Federal Reserve say that GDP growth is not the deciding factor for monetary policy. Over the past year, however, the Fed has adjusted its language based on GDP trends. Recent US data has prompted a notable increase in GDP growth forecasts to the consensus of 1.9%. A GDP growth rate closer to 3.0% could lead to a more aggressive stance from the Fed at its July 31 meeting.

Also worth highlighting is the Bank of Canada meeting on Wednesday. Most likely, he will reduce rates, but after that he may pause. Business activity indices in the Eurozone and the UK on Wednesday will be of great importance for the dynamics of dollar pairs.