A look at the day ahead in European and global markets from Tom Westbrook

Earnings and hope for a turning in China's markets are the prelude to this week's big central bank decisions.

Microsoft (NASDAQ:MSFT), Google parent Alphabet (NASDAQ:GOOGL), Visa (NYSE:V), recruiter Robert Half (NYSE:RHI), General Electric (NYSE:GE), 3M, Dow, chipmaker Texas Instruments (NASDAQ:TXN) and grain dealer Archer-Daniel Midlands are among the heavyweights and highlights in the United States.

Unilever (NYSE:UL), LVMH and EssilorLuxottica report in London and Paris.

The corporate performance and outlook risk disappointing markets that are increasingly priced for a "soft-landing" slowdown in both growth and inflation.

In the Asia session investors cheered pledges of support in the readout from an earlier-than-expected Politburo meeting in China -- though not too loudly.

Property stocks in Hong Kong surged, only they had spent much of the past week or two descending deeper into the discount cellar so gains came from a low base. The Hang Seng rose about 3% and the Shanghai Composite roughly 2%, but neither is roaring out of recent ranges.

The yuan jumped, but it had help from China's state banks, which sources said were buying onshore and offshore early in the Asian day.

Morgan Stanley (NYSE:MS) analysts made much of the absence in the readout of a familiar line that "property is for living not for speculation" and the addition of a pledge to "optimise" policy.

"Investors should recall that the early stage of COVID easing was labelled as 'optimised' policy, which led to a complete change of the policy later," they wrote. Traders are buying it today, but may not do so tomorrow while a cash crunch looms over giant names like Country Garden and Dalian Wanda.

The Eurozone bank lending survey is also out on Tuesday and can give a view on the health of borrowing ahead of Fed and European Central Bank meetings, which are both expected to deliver rate hikes.

The yen was steady in Asia as investors weigh whether the Bank of Japan will tweak policy on Friday.

Key developments that could influence markets on Tuesday:

Economic events: German LFO surveys, Eurozone bank lending survey

Earnings: Unilever, EssilorLuxottica, LVMH, Danaher (NYSE:DHR), Microsoft, Alphabet, Texas Instruments, Verizon (NYSE:VZ), Visa, General Electric, General Motors (NYSE:GM), 3M, ADM, Spotify (NYSE:SPOT), Snap (NYSE:SNAP), Dow

By Rae Wee

SINGAPORE (Reuters) - The euro hit a two-week low on Tuesday as a worsening downturn in euro zone business muddied the bloc's rate outlook against a still-hawkish European Central Bank (ECB), while the dollar rose ahead of this week's trio of major central bank meetings.

The offshore yuan strengthened in early Asia trade, following comments from China's top leaders on Monday pledging to step up policy support for its flailing economy.

The euro was shaky at $1.1063, up just 0.02% having slumped to a two-week low of $1.1059 earlier in the session, after a survey on Monday showed euro zone business activity shrank much more than expected in July, reigniting recession fears.

The single currency had slid more than 0.5% in the previous session.

"The extension of the weakness in the manufacturing sector as well as services, and Germany, in particular, being a lot weaker than expected ... that's putting some question marks around the rhetoric that we should expect from the ECB on Thursday," said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:NABZY) (NAB).

Markets have fully priced in a 25-basis-point rate hike by the ECB at its meeting this week, though the path of future rate increases beyond July remains up in the air.

Elsewhere, sterling fell 0.11% to $1.2811, while the U.S. dollar index steadied at 101.39.

Flash PMI survey similarly out in the UK on Monday showed Britain's private sector growing at its weakest pace in six months in July, while a separate survey pointed to U.S. business activity slowing to a five-month low this month.

The Federal Reserve also meets this week and is expected to deliver a 25 bp rate hike, with a majority of economists polled by Reuters expecting that to mark the last increase of the central bank's current tightening cycle.

"While the Fed meeting (in July) is likely to be uncontroversial in terms of the decision on interest rates, the Fed's statement and the press conference will be extremely relevant for markets," said Guillermo Felices, global investment strategist at PGIM Fixed Income.

"Incoming activity data has been stronger than expected in June and July," he said. "The Fed will have to explain what they make of the resilient U.S. economy."

The yen remained under pressure at 141.43 per dollar, struggling to recover from its heavy losses on Friday on a Reuters report that the Bank of Japan is leaning towards keeping its yield control policy unchanged at this week's policy meeting.

The offshore yuan rose nearly 0.5% to 7.1540 per dollar, with investors encouraged by comments from China's top leaders at the closely-watched Politburo meeting signalling more support for its weakening economy, though many were still seeking out specific details on greater stimulus measures.

"We view the assessment of the economic growth situation and description around the property market as slightly more dovish than expected, though we still await specific easing measures after (the) statement," said analysts at Goldman Sachs (NYSE:GS) in a note.

"We continue to expect a combination of monetary, fiscal, property and consumption support measures to be rolled out in the next few months."

The Australian dollar, often used as a liquid proxy for the yuan, gained 0.18% to $0.67515, while the kiwi rose 0.06% to $0.6209.

By Jihoon Lee

SEOUL (Reuters) -South Korea's economy sped up faster than expected in the second quarter, flattered by headline improvements in trade although weaker consumer and business spending add to the case for the central bank to loosen its restrictive monetary policy.

Gross domestic product (GDP) grew by a seasonally adjusted 0.6% in April-June on a quarterly basis, according to preliminary estimates from the Bank of Korea, after a 0.3% increase in the preceding three months.

It beat the median 0.5% rise forecast in a Reuters survey of economists and marked the biggest quarterly growth since the second quarter of 2022.

By expenditure, exports fell 1.8%, but imports dropped at a much faster rate of 4.2%, bringing a net growth contribution of positive 1.3 percentage points to the heavily trade-reliant economy.

"Qualitatively, it is not so positive as the headline figure indicates," said Park Sang-hyun, chief economist at HI Investment Securities.

"Growth will improve going forward, but it is too early to talk about recovery, as a sluggish Chinese economy may delay the recovery of exports that are already weaker than previously expected."

Private consumption as well as facility and construction investments were all weaker than the quarter before, down 0.1%, 0.2% and 0.3%, respectively, while government spending dropped 1.9%, the biggest since early 1997.

GDP for the quarter was 0.9% higher than the same quarter the year before, compared with an expansion of 0.9% in the January-March quarter and a 0.8% increase expected by economists.

Asia's fourth-largest economy is expected to grow 1.4% in 2023, down from 2.6% in 2022, according to the latest forecasts by the central bank and the government.

"The upshot is that the central bank, enabled by falling inflation, is likely to step in to support the economy by loosening monetary policy in the coming months," said Shivaan Tandon, emerging Asia economist at Capital Economics.

By Hernan Nessi and Jorgelina do Rosario

BUENOS AIRES/LONDON (Reuters) -Argentina on Monday set new weaker trade-related exchange rates while keeping the official peso rate stable, in a push to meet expectations in its $44 billion agreement with the International Monetary Fund while avoiding a politically costly devaluation.

Corn exporters will be able to sell their goods abroad at 340 pesos per U.S. dollar, according to a government decree, a temporary rate to bolster exports until Aug. 31. That is about 27% weaker than the current rate of 268 pesos per dollar, which remained unchanged.

The government will also introduce a 7.5% tax on some goods imports and a 25% levy on imports of most services, with new FX rates at around 288 and 335 pesos per dollar, respectively, according to a government official.

The move comes as the country faces delayed talks with the IMF on the fifth review of a $44 billion program, which was scheduled for June.

The measure is a "half-way point between the devaluation requested by the IMF and the political order not to devalue during an election year," said Roberto Geretto, an economist at Fundcorp.

Argentina's government is grappling with an annual inflation rate of over 100% which a wider devaluation would exacerbate.

"The fiscal devaluation improves Treasury revenues and helps save reserves," Geretto added, but there are still "points to resolve" in negotiations. Both parties have said a deal is close, but an agreement is not finalized yet.

The country's overseas bonds climbed as much as 1.4 cents on the dollar, according to MarketAxess data. The 2035 dollar note is trading at 31.8 cents, its highest level since January 2022, although still at deeply distressed levels.

An IMF spokesperson said the measures announced by the Argentine authorities are "positive to strengthen reserves and consolidate the path of fiscal order, fundamental variables to strengthen economic stability."

'BIG PACKAGE OF DISBURSEMENTS'

Argentina faces maturities with the IMF worth some $3.4 billion between July and August, at a time when the central bank's net reserves are about $6.5 billion in the red.

Buenos Aires is hoping to alter the economic goals it had agreed with the global lender and bring forward some IMF disbursements scheduled for this year as it battles a severe financial crisis which a lack of reserves could exacerbate.

An economy ministry source told Reuters the disbursement program for the second half of 2023 has been agreed and the staff level agreement could be sealed on Wednesday or Thursday.

Economy Minister Sergio Massa, who is running for president ahead of an August primary vote, said on Sunday in an interview with a local TV network that there is a "big package of disbursements" in August and November under the IMF program, without providing any further details.

Under the current program, the country is expected to get $4 billion in July, more than $3.3 billion in September and another $3.3 billion in December. These disbursements are set to mainly repay a failed 2018 bailout.

Argentina, which is also struggling with a significant fiscal deficit, has suffered a considerable hit to its foreign currency income due to a severe drought which crimped farm output, its principal source of exports.

LONDON (Reuters) - British Prime Minister Rishi Sunak will commit to a promise to build 1 million homes by the next national election, tackling a lack of housing stock that has alienated some younger voters who are often forced to pay high rents and are unable to buy.

Before an election expected next year, Sunak's governing Conservatives have witnessed a collapse of support among younger voters, who are frustrated at being priced out of owning their own homes and are struggling with high childcare costs.

Housing has long been a contentious area for the Conservatives, who are divided between some lawmakers in rural areas who do not want to see an increase in building and want to protect greenbelt protected land, and between those in more urban regions, who want to see more homes built quickly.

Housing minister Michael Gove will set out further measures on Monday to unblock the planning system and build homes in the "right places" where there is local consent to reach the 1 million target that was set out at the 2019 election.

Sunak said his government would concentrate on building in inner-city areas where demand was highest, including a new urban quarter in Cambridge to boost its role as a science hub.

"Today I can confirm that we will meet our manifesto commitment to build 1 million homes over this parliament. That's a beautiful new home for a million individual families in every corner of our country," Sunak said, using a term that refers to the time between the 2019 election and the next vote.

"We won't do that by concreting over the countryside - our plan is to build the right homes where there is the most need and where there is local support, in the heart of Britain’s great cities," he said in a statement.

The housing plan is the latest attempt by Sunak to reduce the opposition Labour Party's large poll lead after an unexpected victory in a so-called by-election just outside central London on Friday offered him some breathing space.

In June, British house building at the sharpest pace in more than 14 years apart from two months early in the COVID-19 pandemic, as higher borrowing costs dampened demand and weighed on the broader construction sector, a survey said this month.

Earlier this month, a parliamentary committee said the government was on track to deliver 1 million new homes, but was not forecast to deliver another promise to build 300,000 net new homes per year by the mid-2020s, largely because of uncertainty over planning policy reform.

By Naomi Rovnick and Stefano Rebaudo

LONDON (Reuters) - The European Central Bank looks set to pull the rate-hike trigger on Thursday, but what it will do after July is less certain and financial markets are craving some guidance.

Euro zone interest rates have risen 400 basis points in the last year to 3.5%, their highest in 22 years, and are now close to peaking as headline inflation cools and the economy weakens.

"The difference (from past meetings) is that until now they've given at least quite precise guidance vis-a-vis the next meeting," said Barclays (LON:BARC) head of European economics research Silvia Ardagna. "And we expect that to become more loose."

Here are five key questions for markets.

1/ How much will the ECB hike rates?

A quarter percentage point increase to 3.75% is priced in by markets and forecast by economists.

Headline inflation is cooling but remains high enough to justify a modest increase. The ECB has flagged a July move.

    "The ECB will hike again and anything else would be a major surprise," said RBC Capital Markets global macro strategist Peter Schaffrik.

2/ What signals is the ECB likely to send about future policy?

Market consensus for one more hike after July is no longer rock solid after some ECB hawks suggested that a September rise is not certain, so the ECB could turn more cautious in its signalling, while confirming it will be data dependent.

"(ECB President Christine) Lagarde will stress uncertainty and conditionality (when and if she mentions further tightening)," said Massimiliano Maxia, senior fixed income specialist at Allianz (ETR:ALVG) Global Investors.

Some analysts expect the ECB to pause in September, when updated staff forecasts will give it an opportunity to signal that inflation is set to reach its 2% target.

They added that they wouldn't be surprised if the ECB paused then and hiked later if needed, as the U.S. Federal Reserve has done. Money markets price in one more hike after July, suggesting rates will peak at around 4%.

3/ When does the ECB expect core inflation to fall?

While headline inflation fell for a third straight month in June, so-called core prices, such as those for services, have risen stubbornly and are not expected to relent soon.

Core inflation, seen as a better gauge of the underlying trend, only edged lower to 6.8% from 6.9% - far from the sustained drop rate-setters want to see.

ECB chief Lagarde will likely be pressed on this question but may not give too much away before September's fresh economic projections.

"Underlying inflation will be very, very slow to come down so this is a worry for the ECB," said UBS chief European economist Reinhard Cluse, noting a tight labour market and wage pressures.

4/ What does a weakening economy mean for policy?

Well, rate-setters have reiterated that the main focus remains inflation, even if monetary tightening hurts the economy.

"I think (the weakening of the economy) will have minimal impact on monetary policy," said Ruben Segura-Cayuela, Europe economist at BofA. "What matters for the September meeting will be core inflation."

Still, slowing growth could strengthen the hands of doves. Euro zone business activity stalled in June as a manufacturing recession deepened and a previously resilient services sector barely grew.

BofA reckons the ECB's forecasts are too optimistic; Barclays expects a stagnation for several quarters starting from the second half of 2023.

5/ What impact is tighter policy having on financing conditions?

Bank lending data suggests the steepest surge in borrowing costs in the ECB's history has started to take a toll on credit conditions and latest numbers on July 25 are in focus.

The ECB's chief economist Philip Lane says loan volumes have weakened sharply and that this may generate a "substantial" decline in economic output.

This dovish message, if reinforced by latest bank lending data, may fuel speculation that rates are close to peaking.

"The peak impact of tightening financing conditions is going to be at the end of this year and the first half of 2024. So a lot of the effect still has to come," said BofA's Segura-Cayuela.

By Lewis Jackson

SYDNEY (Reuters) - Australia Treasurer Jim Chalmers said on Monday the country's first budget surplus in 15 years would be even larger than first forecast.

Chalmers said the budget surplus for the financial year just past was likely to be a little over A$20 billion dollars, well up from the A$4.2 billion projected in the May budget as first flagged last month.

"The current expectation of the officials is that the surplus for 2022-2023 will be around twenty billion dollars, or more likely just north of that figure," Chalmers told a news conference in Canberra.

The final figures, due within weeks, mark an astonishing turnaround from the A$37 billion deficit forecast as recently as October thanks to higher tax revenue from low unemployment, rising wages and record commodity exports.

The surplus will be short-lived, with deficits forecast this financial year and next due to rising interest bills and spending on disability care, health and defence.

Chalmers reiterated forecasts for economic growth to slow this year. Australia is closely monitoring weaker economic data coming out of China, its largest trading partner, he said, but has not downgraded its own growth forecast.

"We need to be realistic about the consequences and the implications of the rate rises on our economic and this global uncertainty which we all confront. China is part of that story," he said.

Chalmers also announced Chris Barrett would head Australia's Productivity Commission, an independent research and advisory body. Barrett was an ambassador to the OECD, and, like Chalmers, served as chief of staff to former Treasurer Wayne Swan.

BUENOS AIRES (Reuters) - The International Monetary Fund (IMF) should in the coming days finalize the basis for a staff level agreement with Argentina over a review of the country's $44 billion loan with the IMF, the Washington-based fund said on Sunday.

"The teams of the Economy Ministry and Central Bank of Argentina and the IMF staff have finished the core aspects of the technical work of the next review," the IMF said on Twitter.

"The central objectives and parameters that will be the basis for a "staff level agreement" have been agreed, which is expected to be finalized in the next few days before moving towards the review of the Argentina program," it added.

Argentina faces maturities with the IMF worth some $3.4 billion between July 31 and Aug. 1, at a time when the central bank's net reserves are about $6.5 billion in the red.

The South American country is hoping to alter the economic goals it had agreed with the fund and bring forward some IMF disbursements scheduled for this year as it battles a severe financial crisis which a lack of reserves could exacerbate.

An Economy Ministry source told Reuters the disbursement program for the second half of 2023 has already closed and that the staff level accord could be sealed on Wednesday or Thursday.

Argentina, which is also struggling with high inflation and a significant fiscal deficit, has suffered a considerable hit to its foreign currency income due to a severe drought which crimped its principal source of exports, agriculture.

The IMF said the agreement seeks to consolidate "fiscal order and strengthen reserves," acknowledging the impact of the drought, as well as the damage to exports and tax revenues.

Investing.com -- The week will be dominated by central bank meetings, with the Federal Reserve and the European Central Bank both poised to deliver rate hikes, while the Bank of Japan stands pat. A rally in U.S. equities markets faces an inflection point and oil looks set for more gains amid concerns over the supply outlook.

Fed decision day

With the Fed all but certain to raise interest rates again at the conclusion of its latest policy setting meeting on Wednesday, investors are focusing their attention on whether this is likely to be the final hike of its tightening cycle.

The Fed paused rate hikes in June after increasing its policy rate by 500 basis points since March 2022, when it kicked off its fastest monetary policy tightening cycle in more than 40 years in a bid to combat spiraling inflation.

Investors have mixed views on the central bank's longer-term monetary policy outlook.

Analysts at Goldman Sachs said Friday that while they expect this hike to be “the last” of the long-running tightening cycle they believe the Fed will ultimately choose to "remain more hawkish than market pricing."

"The key question is how strongly [Fed] Chair [Jerome] Powell will nod toward the 'careful pace' of tightening he advocated in June, which we and others have taken to imply an every-other-meeting approach."

ECB meeting

The ECB is widely expected to deliver another 25-basis point rate hike at its upcoming meeting on Thursday, so all eyes are on the central bank’s plans for September, with markets divided on whether there will be another hike or a pause.

Inflation in the eurozone has cooled since hitting a peak of 10.6% in December but still remains well above the ECB’s 2% target. The ECB has said inflation was "projected to remain too high for too long" and it still had "more ground to cover".

After eight consecutive rate rises since July 2022 for a total of 400 basis points, investors and analysts are now hotly debating how many more hikes are needed and how long rates will have to stay high to bring inflation back to target.

ECB President Christine Lagarde is likely to reiterate that future decisions will be based on incoming economic data.

BOJ decision

Friday’s monetary policy decision by the BoJ will be keenly anticipated amid ongoing speculation that policymakers could adjust their ultra-loose monetary stance amid elevated price pressures.

Data on Friday showed that Japan's core inflation stayed above the central bank's 2% target in June for the 15th straight month but an index stripping away the effect of energy costs slowed, indicating price pressures may have peaked.

While the data heightens the chance the BoJ will upgrade this year's inflation forecast, it may take pressure off the central bank to soon begin phasing out its massive monetary stimulus, analysts say.

"All expectations are for them to keep yield curve control as is and no changes to rates, but maybe a little upgrade on their inflation outlook," Edward Moya, senior market analyst at OANDA in New York told Reuters.

However, "the chances that we could get a surprise should remain on the table," Moya added. "The BOJ is potentially going to be a major market-moving event because time’s running out on the BOJ to really set up a policy shift.”

Stock market faces test

A rally in U.S. equities markets faces a major test this week with the Fed expected to deliver what may be the final rate hike of its most aggressive monetary policy tightening cycle in decades.

At the start of the year, many investors expected higher interest rates to bring on a recession that would further hurt stocks after 2022's sharp decline. Instead, the U.S. economy is proving resilient even as the Fed has made progress in its inflation fight and investors are embracing the idea of a ‘soft landing’.

The belief that the Fed is nearing the end of its tightening cycle has boosted stocks in recent weeks.

Aside from the Fed, investors will also be focusing on earnings from some of the massive tech and growth stocks that have led markets higher this year. Among them are Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), which report on Tuesday after the market closes.

Both tech behemoths are up sharply year-to-date, driven by optimism that demand for artificial intelligence will bolster future growth.

Oil prices

Oil prices rose nearly 2% on Friday to notch up a fourth consecutive weekly gain, buoyed by growing evidence of supply shortages in the coming months and rising tensions between Russia and Ukraine that could further hit supplies.

Brent crude futures rose $1.43, or 1.8%, to settle at $81.07 a barrel, with a weekly gain of about 1.2%. U.S. West Texas Intermediate crude ended $1.42, or 1.9%, higher at $77.07 a barrel, its highest since April 25. WTI gained nearly 2% in the week.

"The oil market is starting to slowly price in a looming supply crunch," Price Futures Group analyst Phil Flynn told Reuters.

"Global supplies are starting to tighten and that could accelerate dramatically in the coming weeks. Increased war risk could also impact prices," Flynn said.

--Reuters contributed to this report

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) -Japan's core inflation stayed above the central bank's 2% target in June for the 15th straight month but an index stripping away the effect of energy costs slowed, data showed, suggesting the prolonged commodity-driven price pressures may have peaked.

Yet, with services price growth also slowing last month, policymakers will feel that wage pressures have yet to build up enough to warrant an imminent tweak to the ultra-loose monetary stance.

While the data heightens the chance the Bank of Japan (BOJ) will upgrade this year's inflation forecast next week, it may take pressure off the central bank to soon begin phasing out its massive monetary stimulus, analysts say.

"Cost-push inflation is finally beginning to peak out. We'll likely see inflation slow in coming months, which would allow the BOJ to keep policy steady for the time being," said Toru Suehiro, chief economist at Daiwa Securities.

"While services prices may rise next year, those for goods will stay weak. Inflation could hover around 1% next year."

The nationwide core consumer price index (CPI), which excludes fresh food costs, rose 3.3% in June from a year earlier, matching a median market forecast and accelerating from a 3.2% gain in May, data showed on Friday.

A hike in utility bills added to a steady increase in food and daily necessity prices, increasing the burden for households.

But an index stripping away both fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of trend inflation, rose 4.2% in June from a year earlier, slower than a 4.3% gain in May.

It was the first slowdown since January 2022 in a sign the rapid pace of increase seen in the past few months, driven by a flurry of price hikes by companies, was moderating.

Services prices, closely watched by policymakers on whether inflation is becoming driven more by higher labour costs, rose 1.6% in June from a year earlier after a 1.7% gain in May.

The data comes ahead of the BOJ's closely-watched policy meeting on July 27-28, when the board will release fresh quarterly projections and discuss how much progress Japan is making towards sustainably achieving its 2% inflation target.

Core inflation in Japan's capital, set for release hours before the BOJ's policy announcement on July 28, also likely slowed sharply in July, according to a Reuters poll.

With inflation having exceeded the BOJ's target for more than a year, markets are simmering with speculation the BOJ could soon phase out its controversial yield curve control (YCC) policy as early as next week.

BOJ Governor Kazuo Ueda has stressed the need to keep policy ultra-loose until the recent cost-push inflation shifts into one driven by robust domestic demand and higher wage growth.

The key would be whether companies will continue offering higher pay next year, similar to this year, and start translating the rise in labour costs to services prices.

"If more firms hike wages and pass on the cost, services prices could overshoot," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"Inflation excluding food and energy will likely moderate ahead, but the pace of slowdown could be gradual."

Under YCC, the BOJ guides short-term interest rates at -0.1% and buys huge amounts of government bonds to cap the 10-year bond yield around 0% as part of efforts to fire up inflation to its 2% target.