There will be plenty for markets to chew on this week with US PPI (Tue) and CPI (Wed), eurozone GDP (Wed), UK CPI (Wed) and China data (Thu). Earnings reports from China’s large e-commerce companies, and US retailers Home Depot and Walmart will also be scrutinised. Fed rhetoric will be in sharp focus this week. The Fed’s Bostic will discuss the economic outlook (Tue), Musalem will speak on the US economy and monetary policy (Thu), we will also hear from Harker (Thu), and Goolsbee (Fri).
A fairly quiet start to the week sees the US budget balance later today. UK employment figures and US PPI follow on Tuesday, and Home Depot earnings may provide more colour on the outlook of the consumer. A busy day Wednesday sees the release of eurozone GDP and industrial production, and UK and US CPI prints. We will also have UBS Group and Tencent earnings. On Thursday, China data includes home prices, retail sales and industrial production. Japan and UK GDP figures, and later US retail sales and industrial production readings will also attract market focus. Earnings reports include Alibaba and Walmart. US housing starts and Uni. of Michigan consumer sentiment are due on Friday.
A rollercoaster week for asset classes witnessed a massive turnaround, particularly for equity markets. Having started on the back foot on Monday, as markets digested the weaker than expected US jobs data, then the unwinding of the Japanese yen carry trade took hold. The VIX Index, a measure of volatility spiked up to levels not seen since the Global Financial Crisis, in 2008. Having hit an intraday high of 65.73 on Monday, the VIX simmered to 20.37 by Friday’s close. The S&P Index, having lost 6% on Monday, pared losses, closing marginally up on the week. Meanwhile, UST yields moved higher from the year lows reached a week earlier. The 10-year benchmark closed 15bps higher at 3.94%. The dollar (DXY Index) closed the week 0.07% lower, and Brent enjoyed a 3.71% rally to $79.66pb.
Last week we heard from the Fed’s Schmid, who said he is not ready to support a cut in US rates with inflation still above target, adding that the labour market is still healthy despite some signs of cooling. Later Bowman said: “inflation is still uncomfortably above the committee’s 2% target”, adding, “I will remain cautious in my approach to considering adjustments to the current stance of policy”. Separately, Fed’s Collins noted that “if the data continues the way that I expect, I do believe it will be appropriate soon to begin adjusting policy and easing how restrictive the policy is”. At time of writing, this morning market are pricing in a 50bps cut in September.
In China, PPI stagnated at 0.8%yoy in July, while CPI beat expectations, rising 0.5%yoy, bolstered by pork prices. China’s central bank, in its 2Q monetary policy report, emphasised a flexible prudent monetary policy aimed at ensuring stable growth through enhanced macroeconomic policy consistency and counter-cyclical adjustments. The report highlighted the bank’s focus on balancing internal and external factors, maintaining price stability, and guarding against financial risks. The PBoC will support the housing market and monitor global monetary policies, with potential easing opportunities emerging after expected Fed rate cuts. Recent data shows a slight reacceleration in CPI, driven by food prices and seasonal travel demand, whilst export growth slowed and import growth accelerated. The bank also addressed concerns about bond fund risks and announced investigations into smaller banks for market violations. Overall, the PBoC aims to navigate economic challenges whilst supporting key sectors and maintaining financial stability.
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