The week of 12th-16th August 2024- US inflation figures top the bill!

Last Monday Japanese authorities were swift to attempt to re-stablish some order in the markets by taking a less hawkish stance on raising interest rates in the short term. It’s just over a week since a weaker than expected Non-Farm Payrolls number following on from aggressive comments from Bank of Japan Ueda spooked markets and caused market turmoil in Asia and elsewhere. After Monday’s brutal sell off, a nervous carry trade re-imposed itself- borrow yen, buy assets- markets stabilized and we wait for the next shock, because there will be one!?

Once again, we turn to the US for clues on when they will start to ease. Wednesday’s inflation numbers will be key to this, or at least should be. Remember, the US Federal Reserve are/were reticent to act until they are confident that inflation is closing in on it’s 2% goal. 2% for some months has been a mirage! Fed Chair Powell has started to down-play his strict adherence to this rule of thumb. The Fed, in my view will cut in September (with all the aplomb of the Swiss National Bank defending the EURCHF peg in 2015) irrespective of Wednesday’s number. Some economists are even suggesting 50bp.?

Other interesting data include UK and Australian employment figures, UK, Euro area and Japanese GDP, a New Zealand interest rate announcement and US Retail Sales and PPI. We will also receive ZEW and Michigan Sentiment gauges.?

Monday from a data front should be quiet. Tuesday starts off with UK employment numbers and UK unemployment, sadly, is likely to rise to 4.5% for June. German and Euro Area ZEW economic sentiment figures are expected to slump in August (35.4 vs 43.7 for Euro Area and 30.6 vs 41.8 for Germany)! EURUSD and EUR crosses will be volatile at this time. In the afternoon, the US Producer Price Index is slated to increase by just 0.1% in July.?

Wednesday, early morning and the RBNZ is widely expected to keep interest rates on hold at 5.5%. Their press conference is also worth listening to for those up early enough. UK inflation metrics are out next and the government will be hoping for both Headline and Core inflation to drop. The likelihood is that Headline inflation will rise in July to 2.3% from June’s 2%. Core may continue its trend lower. Expectations are for 3.4% in July from June’s 3.5%. Euro Area GDP is forecast to rise a tick to 0.6% y.o.y for the second quarter.?

The World and it’s carry-traders will be anxiously awaiting for US inflation figures in the afternoon. Both are expected to drop- Headline to 2.9% and Core to 3.2%. Not quite 2%!? A data release around these kind of levels will keep markets bobbing along.??

Thursday starts with Japanese GDP which is expected to bounce back in Q2 and post +2.1% vs -2.0% last quarter. Australian employment figures are forecast to be stable with the unemployment rate staying at 4.1%. The UK government will be looking for an improvement in UK GDP which posted 1.4 y.o.y last time out. In the afternoon, US Retail sales are expected to bounce back and improve to 0.3% for July.?

?

Friday’s main release is a Consumer Sentiment gauge from the University of Michigan which is pencilled to improve slightly to 66.7 in August from July’s 66.4.?Good Luck and Good trading!

Ben Robson?

Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill