Tech Earnings and Central Banks Set to Shape Market's Next Move

Investors are bracing for a potentially volatile market as major technology companies and central banks take center stage. Barclays strategists led by Emmanuel Cau note that strong second-quarter earnings on both sides of the Atlantic have helped equities absorb macroeconomic pressures, but rising bond yields and elevated energy prices create a more challenging environment.

The price surge in Brent crude has driven inflation expectations higher across the United States and Europe, with no breakthrough in the conflict between the US and Iran contributing to the situation. The European Central Bank has indicated that another interest-rate increase remains possible at its September meeting.

Barclays expects the Federal Reserve to hold interest rates unchanged next week while continuing to emphasize their fight against inflation. Meanwhile, hawkish signals from the Bank of Japan hint at a faster pace of policy tightening, reminiscent of the summer 2024 carry trades unwind episode.

The global policy easing cycle is over for good, and risk assets have to adjust to the new reality of higher real rates, which rarely come without volatility. As several prominent technology firms schedule their quarterly results, Barclays expects AI capital expenditure to remain a primary focus for investors.