Investors will be watching key inflation data set to be released next Wednesday for clues about the potential magnitude of an expected rate cut by the Federal Reserve in September. Markets are likely to remain volatile, and retail sales results will be monitored for signs of strength in consumer spending. Here’s a look at what’s expected in the markets this week.
CPI Data
July consumer price index (CPI) data is expected to indicate that inflation continues to move closer to the Fed’s 2% annual target. A report reflecting only a slight cooling could ease fears that the Fed has pushed the economy into a crisis by keeping rates elevated for too long. However, a negative report could reignite recession fears and trigger market volatility once again. The economic calendar also includes July retail sales figures, as well as the weekly report on initial jobless claims.
Investors will also have a chance to hear from several Fed officials, including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, and Chicago Fed President Austan Goolsbee. Comments from these Fed officials last Thursday suggested they are increasingly confident that inflation is moderating enough to warrant rate cuts.
Market volatility
Investors are likely to remain nervous this week after last Monday’s stock market plunge, triggered by a combination of fears of a U.S. recession and the unwinding of yen-funded global trades. On Thursday, a larger-than-expected decline in jobless claims showed that fears about the health of the labor market were overblown, helping markets recover most of their losses by Friday’s close. In the week ahead, attention will focus on whether the Fed’s assessment of expected rate cuts is supported by upcoming economic data and how much of the yen-financed selloff will persist.
Concerns about the possible escalation of conflict in the Middle East and the impending U.S. elections also suggest that volatility will not subside anytime soon.
Corporate results
Earnings season is in its final phase, and most companies have already reported their quarterly financial results. But there are a few notable names left to report next week, such as retailers Home Depot (HD) and Walmart (WMT).
Traders will be watching to see what retailers say about the resilience of consumer spending, a key driver of economic growth, especially given recent signs of weakness in economic data. Other big names on the earnings agenda include Cisco Systems (CSCO) and Fox Corporation (FOX).
Oil prices
Oil prices rose last week, supported by comments from Federal Reserve policymakers indicating that they may cut interest rates in September, which eased concerns about demand. Meanwhile, the risk of an escalation of conflict in the Middle East continues to heighten supply risks. Brent gained more than 3.5% for the week, while U.S. crude futures rose more than 4%.
Fears of a possible recession have subsided, bolstering demand expectations. Simultaneously, geopolitical tensions in the Middle East have fueled fears of a potential conflict that could disrupt production in the region and dent global crude supplies.
The possibility of retaliatory attacks by Iran against Israel heightens concerns about oil supplies in the world’s largest oil-producing region.
UK data
The U.K. will release a series of economic data that will influence monetary policy forecasts for the coming months. Wage growth data will be released on Tuesday, followed a day later by inflation figures, which will be closely watched for signs of persistent price pressures, particularly in the still-booming services sector. Thursday’s monthly GDP data is expected to show near-zero growth in June, but the economy is estimated to have grown by 0.6% in the second quarter.
Meanwhile, Friday’s retail sales data is expected to rebound in July after last month’s drop. The Bank of England cut rates for the first time since 2020 earlier this month, and markets are currently estimating a 33% chance of another quarter-point cut at its September meeting.
