Brextension, Brelection, Brexinction: World market themes for the week ahead

Federal Reserve Board Chairman Jerome Powell testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on the"Semiannual Monetary Policy Report to Congress" on Capitol Hill in Washington on July 11.There are no guarantees in life, but a 25 basis point Fed rate cut next week is widely considered a sure thing. You can see it in the CME’s FedWatch tool, where odds of a cut in the fed funds target rate to 1.50-1.75% are at 94%.

The 3-month/10-year yield curve too has turned positive after being inverted for the most part of six months. That’s down to a fall in shorter-dated yields, reflecting confidence the Fed has at least one more cut up its sleeve.Clues may lie in U.S. company earnings. As we near the half-way mark for the Q3 season, we’ve seen more upside surprises than misses from S&P 500 companies. That’s giving investors a reason to be optimistic about the business cycle.

Coming up: A crucial week for European banks. Names such as Deutsche Bank, HSBC, Credit Suisse, ING, BNP Paribas, and Santander will report third-quarter numbers and by Friday, results from 61% of the sector will be known.

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