News on the US-China trade war continue to be in focus for markets this week whilst various US data points may inform on central banks willingness to further ease monetary policy. In truth, it is trade and political developments which will be driving summer markets, which by their nature can be prone to volatile moves.
Indeed, last week the S&P 500 chalked up its longest streak of consecutive big daily moves since the start of the year, reflecting the heightened level of volatility that has gripped global financial markets this month. Lower volumes during summer months do tend to exacerbate price action so it will be interesting to see if some of these breakout moves, in gold for example, can be sustained.
The US is fairly quiet in terms of data releases with core inflation figures expected to remain unchanged. This reading tends to overshoot the core PCE inflation figure so less relevance is placed on it. The fact that retail sales data may post decent gains for July will probably be overlooked as the story may not be so positive for the rest of the year owing to the escalating trade war.
The market has continued to price in another rate cut for the next FOMC meeting in September. Similar to before its previous meeting, a 25bp cut is now a certainty, with a 35% chance of a more aggressive 50bp cut.
However it is noteworthy that several policymakers, including James Bullard – arguably the most dovish policymaker – recently appeared hesitant to commit to more cuts, indicating that the Fed can be patient for now. Therefore, the near-term risks surrounding the dollar, allowing for trade tensions, seem tilted to the upside if various officials try to push back against the market’s overly dovish expectations in the coming weeks.
In the UK, the labour market report for June is released on Tuesday and CPI inflation in July is due out Wednesday. Skill shortages in the jobs market are pressuring firms into lifting earning levels more rapidly and it is probably this lone hawkish factor which is holding back the Bank of England in being more dovish in its rates outlook.
Of course, while the economic releases are important, the focus remains on Brexit and how it will develop over the autumn. Currently, the Brexiteers and Remainers are discussing whether or not Parliament is able to block a ‘no deal’ Brexit from happening automatically.
Here's what to look out for on the calendar across global markets next week:
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