Wednesday preview: Federal Reserve, Lloyds in the spotlight

All eyes on Wednesday would be on the U.S. Federal Reserve and whether or not it signaled that interest rates hikes would stop after this policy meeting.

Many economists believed that was possible, but none were expecting Fed chairman, Jerome Powell, to say as much in his press conference.

As Ian Shepherdson, chief economist at Pantheon Macroeconomics explained, "the Fed cannot afford to be wrong twice about inflation, in the same direction, in the same cycle."

Shepherdson was referring to the Fed's erroneous initial characterisation of above target inflation coming out of the pandemic as 'transitory'.

Yet Shepherdson was also expecting matters to have changed by September with core inflation prints having averaged less than 0.2% month-on-month in the latest two reports, hiring having slowed modestly and wages having slowed down.

Former Fed chief Ben Bernanke appeared to hold somewhat similar views to Shepherdson.

On 20 July, he told a webinar hosted by Fidelity Investments that "it's possible this increase in July might be the last one."

Perhaps more interesting, according to Bloomberg, Bernanke also said that: "We'll get down to three, three [per cent] plus [inflation] by early next year and then I think the Fed will take its time trying to get down to its 2% target."

Nonetheless, Bernanke reportedly added that the U.S. jobs market was "still pretty hot", although on the flip-side, he was not anticipating a deep recession in 2024.

For their part, analysts at Bank of America believed that Powell would want to push back against any additional easing in financial conditions.

On a related note, Bloomberg's John Authers noted on Tuesday research from SocGen on how corporate treasurers in the US had locked in financing at low rates during the pandemic, so that junk bond yield spreads had remained tight.

According to Apollo Group's Torsten Slok however, default rates for US corporates, while still low by historic standards, had unmistakably picked up.

For his part, writing in the Wall Street Journal on the same day that Bernanke spoke, Mickey Levy, senior economist at Berenberg Capital Markets, argued that the Biden administration's multiple fiscal stimulus programmes meant that higher rates still were needed.

"After failing to predict the economic and inflationary effects of the unprecedented $5trn in COVID spending, the Fed must properly assess current fiscal policies."

"Continuing fiscal stimulus requires the Fed to raise rates further to achieve its 2% inflation target."

In the corporate arena meanwhile, it was Lloyds Banking Group that would be in the spotlight, as the lender posted its first half figures.

Since February, the lender's shares had been sliding back on concern that the improvement in margins was set to grind to a halt, said Michael Hewson, chief market analyst at CMC Markets UK.

Yet when it last provided guidance, in February, Lloyd's said that it expected its net annual interest margin to rise past 3.05%, whereas previously it had guided towards 2.8%.

And that was despite expectations for further rate hikes out of Bank, Hewson noted.

Lloyd's deposit base had fallen by £8bn over the last 12 months, while loans and advances to customers fell during the first quarter, extending the declining trend that had been in place since June 2022.

Overseas however, investors would be digesting the latest quarterly updates from Alphabet and Microsoft that were due out after the close of trading in New York on Tuesday night.

Wednesday 26 July

INTERIMS

Banco Santander S.A., Breedon Group , Centamin (DI), Conduit Holdings Limited Com Shs (DI), Lloyds Banking Group, Primary Health Properties, Rathbones Group, Restore, RHI Magnesita N.V. (DI), Rio Tinto

QUARTERLY PAYMENT DATE

Ecora Resources

QUARTERLY EX-DIVIDEND DATE

Marsh & Mclennan Cos Inc.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Crude Oil Inventories (US) (15:30)

M3 Money Supply (EU) (09:00)

MBA Mortgage Applications (US) (12:00)

New Homes Sales (US) (15:00)

Q2

Centamin (DI)

FINALS

Hargreaves Services, Van Elle Holdings

SPECIAL DIVIDEND PAYMENT DATE

Castings

AGMS

Aquila Services Group, B.P. Marsh & Partners, Blackstone Loan Financing Limited (EUR), Eurasia Mining, Molten Ventures, Motorpoint Group, NewRiver REIT, Ninety One , Norcros, OptiBiotix Health, Oracle Power , Palace Capital , Triad Group

UK ECONOMIC ANNOUNCEMENTS

BRC Shop Price Index (00:01)

FINAL DIVIDEND PAYMENT DATE

Airtel Africa , Baillie Gifford China Growth Trust , Camellia, Inspired, Worldwide Healthcare Trust, Wynnstay Properties