5 key questions for the week ahead

The coming week (27 July – 31 July) should provide markets with answers to some key questions. As such it could get volatile with major earnings releases and central bank decisions on tap alongside the potential for the situation in the Middle East to boil over even more.

1. Where is the Fed with rate hikes? The meeting of 28/29 July is a huge risk event for markets. With no forward guidance, the market has only the Fedspeak and the meetings themselves now to go on. Fed speakers have sounded hawkish about inflation. Oil prices have shot up once more since the last meeting, which itself revealed the new Fed chair Kevin Warsh’s hawkishness on inflation. Yields have backed up aggressively with the 10yr topping 4.7% on Thursday for its highest since January 2025. US 30yr rates haven’t traded above 5% for so long since 2007, when the Fed funds rate was 150bps lower. This suggests investors aren’t just worried about short-term fuel price inflation, but demanding a much higher premium for holding longer-dated debt because of a worsening fiscal picture. Yet the economy is still purring – data Thursday showed US jobless claims fell to the lowest since 1969. I remain of the view that the July meeting is very much live.

2. How does the Bank of England weigh softer inflation and a worsening labour market against the recent spike in energy prices? Talking of fiscal risks, the UK is not a stranger to bond vigilantes fixating on a deteriorating economy and fiscal outlook. The week sees the Bank of England deliver its assessment on Thursday. CPI inflation fell unexpectedly sharply in June to 2.6%, while core inflation remained unchanged at 2.6% and the stickier problem of services inflation eased to 3.6% from 3.7% in May. The puts the hawks at the Bank of England on the back foot, albeit core inflation remained stubborn and services sector inflation is still well above where the BoE would like it. Moreover, the worry is the recent re-escalation in the Middle East and corresponding rise in oil prices – with Brent hitting $100 a barrel again on Thursday - sends inflation higher again later in the year and it starts to look more entrenched. Tuesday’s labour market figures showed the risks of inflation-wage-price-spiral are low down the pecking order of concerns right now. The coming days will answer a question of great importance for UK investors – where does the BoE see the trade-off of risks between inflation and the labour market? Whilst I think the MPC will hold rates steady at this meeting, they are likely to look through the data as far their medium-term outlook goes. Gilt yields will be on watch for any further signs of higher spending by the new Andy Burnham-led government. The Bank may seek to deliver a hawkish message this time to get in front of any blowout in longer-dated gilts.

3. How strong is AI capex? Markets get a view from the hyperscaler earnings releases – Meta, Microsoft and Amazon are all due to report. Alphabet’s earnings release indicated spending is still super-hot. A few months ago at the peak of the AI exuberance more spending = higher share price. Now investors are feeling spooked the more that they spend without seeing a clear pathway to returns. 

4. Will geopolitical tensions and oil prices ease? By Thursday the US and Iran had spent nearly two weeks exchanging military strikes with the conflict showing signs of escalation and no immediate sign a peace deal could be reached. Everyone was talking about choke points throttling global energy supplies – next week answers the question of whether there is any chance of a swift return to the relative calm – and lower oil prices – during the period under the MoU.

5. A lot depends on how much Trump is spoiling for a fight. He’s been ratcheting up the war rhetoric and the tariff war rhetoric. Another big question in the coming week – does Trump Always Chicken Out?