Markets start the week in ‘risk off’ mode as rising treasury yields and concerns over China’s economy dent confidence. Chinese data releases for July have mostly surprised to the downside, with bank loans sliding to a 14-year low, consumer and producer prices declining and exports dropping the most since February 2020. The Japanese yen remains on the back foot after falling through the psychological 145 area against the dominant US dollar, further aided by the interest rate difference between the two currencies.
It is a key week for the UK and the pound, with markets and the Bank of England paying close attention to inflation data, due in the middle of the week. Ahead of this we await labour market data tomorrow, which is likely to show that the labour market continues to cool. Job vacancies remain on a downward trend, unemployment has increased, and these trends are expected to continue. Wednesday sees the release of headline CPI for July, with analysts expecting a further drop in inflation to 6.8% from 7.9%. Falling energy prices will likely be the biggest contributor to a fall, however further interest rate hikes from the BoE remain on the cards. UK Retail Sales are out on Friday along with Euro area inflation which is expected to dip slightly in July.
Last week’s CPI and PPI reports showed that disinflation remains in the US, driven by Fed policy, with many economists continuing to expect a recession this year. We look for more clues on the strength of the economy this week with Retails Sales due out on Tuesday and Industrial Production on Wednesday. Markets will also be paying attention to the strength of the housing sector as we await housing start and building permits data later in the week. Upcoming data will likely dictate if the FOMC will keep rates on hold when policymakers meet next month.
Have a good week.