Key Factors for The week Ahead highlights: More earnings, July inflation readings, consumer sentiment update
Even though Treasury Secretary Janet Yellen thinks credit ratings are “outdated,” Fitch downgraded the US, making them relevant again. Investors may pay more attention to Germany’s and Switzerland’s credit ratings next week after the surprising change. We have significant US and Chinese inflation figures. Markets want US core CPI to fall harder and faster to prove the Fed is done increasing rates. China’s yearly inflation rate will also be revealed.
The week that was
Fitch ratings agency reduced their US credit rating to AA+, becoming the second agency to withdraw triple-A classification from the US.
Wall Street fell from its highs, money flowed to safe-havens, and AUD/USD fell to an 8-week low.
In a relatively dovish meeting (considering bets were on a 50bp hike two weeks prior), the BOE hiked 25bp. Money markets decreased terminal rate forecasts to 5.65% from 5.74% pre-meeting due to “restrictive” policies.
Many called a peak RBA rate after a second month of 4.1% interest rates and a third consecutive quarter of negative retail trade numbers.
The RBA’s weekly SOMP downgraded GDP through 2024 and CPI to 4.25% by December, but reduced mean CPI stayed unchanged through 2025.
Key factors for the wall street week Ahead
U.S. inflation
On Thursday, the U.S. will report July inflation statistics to determine if price pressures are falling and if markets are right to expect the Fed to slow its rate rises.
After a quarter-point hike last month, lower figures would make it more probable that Fed policymakers will not raise rates in September.
The U.S. will announce July PPI data on Friday, with core producer prices estimated to rise 2.3% year-over-year.
Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, and Fed Governor Michelle Bowman will also address investors this week.
Stock rise paused
After five months of gains, investors took profits on Friday, sending the S&P and Nasdaq to their largest weekly percentage drops since March.
If Thursday’s inflation data shows consumer prices cooling, shares may rise. After Fitch downgraded the U.S. credit rating, Treasury rates rose to year-highs, rattling markets.
Stock demand can fall when Treasuries, backed by the U.S. government, yield more.
While job growth was sluggish in July, pay growth was quicker than expected, raising concerns that the Fed may hold rates higher for longer.
Credit ratings
Even US Treasury Secretary Janet Yellen calls credit ratings “outdated,” Fitch has revived them. After Fitch withdrew the US’s triple-A classification, investors may pay closer attention to credit ratings. S&P and Moody’s will evaluate Germany and Switzerland’s credit ratings on Thursday. It’s possible they’ll fail, but it may be less surprising today.
Germany’s AAA grade “reflects its diversified, high value-added economy, strong institutions and record of sound public finances,” according to Fitch in May. S&P global rates Switzerland “AAA” with a “stable” credit watch outlook.
China inflation
China will announce trade statistics on Tuesday and July inflation data on Wednesday, which is likely to show a reduction in consumer prices amid concerns about the world’s second largest economy.
After harsh pandemic-era restraints were lifted late last year, China’s economy rebounded quickly in the first quarter, but demand has weakened in recent months.
Though details are scarce, authorities have introduced a number of policy steps to assist the sagging recovery in recent weeks. Investors expect more.
Eurozone data
On Monday, Germany will report Eurozone industrial production. A downturn in global demand, notably from China, is projected to lower the report.
In the second quarter of 2023, Germany’s economy stagnated, missing projections for mild growth due to poor spending power, increased interest rates, and low industry order books.
UK data dump
Markets currently expect the top to be below 6% after the BOE (Bank of England) gave a dovish 25bp raise. The change in tone was mostly due to inflation indicators finally showing the potential to have crested, but we also need to see further evidence of weakening in the UK economy to sustain a less-hawkish BOE.
UK GDP
On Friday, the U.K. will disclose second-quarter GDP figures, which is predicted to rise slightly, reflecting a stagnating economy. After practically stalling for two months, it shrank less in May.
Last Thursday, the Bank of England boosted U.K. rates to a 15-year high of 5.25%, its 14th consecutive increase, and warned that borrowing prices would likely remain high.
In June, British inflation was 7.9%, the highest of any major country, down from 11.1% in October.
Even though the BoE expects the economy to grow slowly, Deputy Governor Ben Broadbent said keeping rates high for a long time will lower inflation.
Inflation Rates
On Thursday and Friday next week, the Consumer Price Index (CPI) and Producer Price Index (PPI) will report inflation. Consumer prices likely climbed 0.2% last month, matching June, and 3.3% annually. This would accelerate from June’s 3% rate, which had a positive year-over-year base impact as inflation peaked in June 2022. The slowest core inflation rate since October 2021 was 4.8%.
The July PPI, which tracks manufacturer and wholesaler inflation, will be released by the BLS on Friday. Producer prices rose 0.2% in July after gaining 0.1% in June. They were likely up 0.7% year-over-year, up from 0.1% in June, the smallest increase since August 2020.
Consumer Attitudes
The University of Michigan will release its preliminary August Consumer Sentiment Index (MCSI) on Friday, updating consumer confidence. The index is forecast at 71, down from 71.6 last month. Despite falling inflation and a healthy labor market, July’s rating was the highest in two years. Last year, consumer morale touched an all-time low of 50 amid the greatest inflation in four decades.
Weekly Market Outlook (07-11 August) / Day Wise
Monday
BoJ’s Summary of Opinions:- Market investors will closely examine the BoJ’s Summary of Opinions for information and hints about the BoJ’s monetary policy. As Eamonn accurately noted here, there was a small indication the previous time that suggested a potential change. In reality, by adding a soft cap at -/+0.5% and a hard cap at -/+1.0%, the BoJ tacitly extended the YCC band. Recall that the BoJ made two interventions last week as yields on the 10y JGBs crossed the 0.60% threshold. However, it appears that the only route is upward, toward the 1.0% hard cap.
Wednesday
Chinese CPI M/M reading is projected to remain flat at 0.0% vs. -0.2% prior, while the Y/Y reading is predicted to enter deflationary territory at -0.5% vs. 0.0% prior. The PPI Y/Y is anticipated to stay in the red at -4.0%, down from the previous reading of -5.4%. More economic support was promised by Chinese authorities, but thus far, nothing meaningful has materialised.
Thursday
US CPI :- Due to negative base effects and increased gas costs, the US CPI is projected to increase by 0.3% on Thursday, up from the previous reading of 3.0%. The M/M number is predicted to remain unchanged at 0.2%. Compared to the prior reading of 4.8%, the Core CPI Y/Y is predicted to move down to 4.7%, and the M/M reading is predicted to come in at 0.2%. Since the Fed is concentrating on Core inflation, the Core M/M figure will be the market’s primary focus.
US Jobless Claims:- As the labour market data is the focus of both the Fed and the market, the US Jobless Claims report continues to be a crucial market-moving report. Initial claims are predicted to be 231K this week, up from 227K the previous week, while there isn’t a consensus on continuing claims yet, despite the fact that the reading for the previous week increased to 1700K from 1679K.
Friday
US PPI Y/Y is projected to increase by 0.7% from the previous 0.1%, while the M/M reading is projected to decrease by 0.2% from the previous 0.1%. While the M/M figure is projected to be 0.2% vs. 0.1%, the Core PPI Y/Y is anticipated to be 2.3% vs. 2.4% previously.
USA Economic calendar for week
Monday, August 7
- Manheim Consulting Used Vehicle Price Index (July)
- China Trade Balance (July)
Tuesday, August 8
- U.S. Trade Balance (June)
- Wholesale Inventories (June)
- NFIB Business Optimism Index (July)
- IBD/TIPP Economic Optimism Index (August)
- New York Fed Household Debt and Credit Report (Q2 2023)
Thursday, August 10
- Consumer Price Index (CPI)
- Inflation Report (July)
Friday, August 11
- Producer Price Index (PPI)
- Inflation Report (July)
- University of Michigan Consumer Sentiment Index – Preliminary (Aug)
- U.K. Gross Domestic Product (GDP) – Preliminary Reading (Q2 2023)
Global Economic calendar for week
Monday
Japan
Boj Summary of Opinions, Foreign reserves (July)
China
Foreign Exchange Reserves (July)
Tuesday
USA
Balance of trade , wholesale Inventories (Jun)
Japan
Household Spendings, Current Account (Jun).
China
Balance of trade (July)
Wednesday
USA
EIA & API Crude oil stock change, MBA Mortgage Applications (for week ended aug 4)
Japan
Machine Tool Orders (July)
China
Inflation, (PPI July)
Vehicle Sales
Thursday
USA
Inflation (july), Initial jobless claims, (for week ended aug 5)
Japan
PPI (July)
Friday
USA
PPI(July)
China
Vehicle Sales
U.K.
Q2CY23 GDP Growth, (Preliminary Estimates): Industrial Production,
Construction Output, Balance of Trade (June), Construction Order (Q2CY23)
EARNINGS CALENDAR
Monday, August 7
- KKR & Company (KKR), Palantir Technologies (PLTR), BioNTech (BNTX), International Flavors & Fragrances (IFF), Coterra Energy (CTRA), Tyson Foods (TSN), Skyworks Solutions Inc. (SWKS), Lucid Group (LCID), Paramount Global (PARA),Viatris Inc. (VTRS)
Tuesday, August 8
- Eli Lilly & Company (LLY), United Parcel Service (UPS), Zoetis Inc. (ZTS), Duke Energy Corp. (DUK), Li Auto (LI), GlobalFoundries Inc. (GFS), Sun Life Financial (SLF), Barrick Gold (GOLD), Take-Two Interactive Software (TTWO)
- Rivian Automotive (RIVN)
Wednesday, August 9
The Walt Disney Company (DIS), Honda Motor Company (HMC), Manulife Financial Corp. (MFC), Illumina (ILMN), Roblox Corporation (RBLX), U-Haul Holding Company (UHAL), Charles River Laboratories International (CRL)
Thursday, August 10
- Alibaba Group (BABA), Brookfield Corporation (BN), Wheaton Precious Metals Corp. (WPM), News Corporation (NWS), US Foods Holding Corp. (USFD)
Friday, August 11
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