The Week Ahead: US Inflation, UK Stats, and China’s Economy in Focus

The US Dollar

It is a pivotal week ahead for the US dollar, with inflation in the spotlight.

US producer prices will draw investor interest on Tuesday, August 13. Economists consider producer prices a leading indicator of consumer price inflation. Producers adjust prices depending on the demand environment, influencing consumer price trends. Downward producer price trends could signal a softer inflation outlook and multiple 2024 Fed rate cuts.

However, the spotlight will shift to crucial consumer inflation numbers on Wednesday, August 14. A lower annual inflation rate could cement September, November, and December Fed rate cuts.

On Thursday, August 15, US retail sales and labor market data will require consideration.

A pickup in retail sales would support hopes of a US soft landing, given that private consumption contributes over 60% to the economy. However, jobless claims could impact US dollar demand more following recent market reactions to US employment data. A spike in jobless claims could retrigger fears of a hard landing.

On Friday, August 16, consumer sentiment figures will wrap up a busy week for the greenback. A marked increase in the Michigan Consumer Sentiment Index could indicate a positive consumer spending outlook, possibly tempering expectations of multiple 2024 Fed rate cuts. Higher consumer confidence could signal increased spending, fueling demand-driven inflation.

Beyond the numbers, investors should monitor FOMC member speeches. Dovish views on the economic outlook, inflation, the labor market, and the Fed rate path could impact US dollar demand.

The EUR

On Monday, German wholesale inflation figures will influence EUR/USD demand. Higher-than-expected wholesale price increases could suggest a pickup in headline inflation. Upward trends in consumer prices may impact investor bets on multiple 2024 ECB rate cuts.

ZEW Economic Sentiment figures for Germany and the Eurozone will draw investor interest on Tuesday. A slump in sentiment would align with recent economic indicators and increase expectations of a Euro area recession. An increasing risk of a Euro area recession could influence investor bets on multiple 2024 ECB rate cuts.

On Wednesday, industrial production, employment, and second estimate GDP numbers for the Eurozone will require consideration.

Revisions to GDP numbers and employment trends would likely influence EUR demand more. Weaker-than-expected employment figures could support the case for multiple 2024 ECB rate cuts. A deterioration in labor market conditions could affect wage growth, disposable income, and consumer spending.

On Friday, trade data for the Eurozone will be in focus. Import and export trends could influence views on the Euro area economy and the ECB rate path.

Beyond the stats, ECB member commentary also requires consideration. Views on inflation and the timing of rate cuts will affect EUR demand.

The Pound

UK labor market data will spotlight the Pound on Tuesday. Softer wage growth and higher unemployment could support investor bets on a Q4 2024 Bank of England rate cut.

On Wednesday,  UK inflation numbers could be a crucial data release. A pickup in headline inflation could reduce the likelihood of a Q4 2024 BoE rate cut.

UK GDP numbers will draw investor interest on Thursday. Slower-than-expected growth could rekindle investor expectations of a UK economic recession. Rising chances of a recession could support a more dovish BoE rate path.

On Friday, UK retail sales figures will influence the BoE rate path. Upward trends in consumer spending could fuel demand-driven inflation and lower the expectations of a Q4 2024 BoE rate cut. Additionally, a pickup in retail sales could ease concerns about recession, as private consumption contributes over 60% to the UK economy.

The Loonie

Housing sector data from Canada will put the Loonie in the spotlight on Friday. An increase in housing starts could signal a rising demand environment. Increased demand may boost house prices, consumer confidence, and spending. Conversely, weaker housing starts could lead the Bank of Canada to consider rate cuts to support the housing sector.

The Australian Dollar

Australian consumer confidence and wage growth will impact the Aussie dollar on Tuesday.

A rise in consumer confidence could indicate stronger consumer spending, fueling demand-driven inflation. Additionally, rising wages could boost disposable income spending, raising the likelihood of an RBA rate hike. Last week, RBA Governor Michele Bullock warned that the RBA would not hesitate to hike rates if inflation remained elevated.

The Australian labor market will be in the spotlight on Thursday. Labor market conditions could influence wages, disposable income, and consumer spending trends. A steady unemployment rate may suggest a sticky inflation environment and a more hawkish RBA rate path.

The Kiwi Dollar

On Wednesday, the RBNZ will spotlight the Kiwi dollar. A surprise rate cut could sink the Kiwi dollar.

However, business PMI numbers from New Zealand also need consideration on Friday. A more marked contraction across the manufacturing sector could impact the labor market. A weaker labor market environment could affect wage growth and disposable income, increasing the chances of an RBNZ rate cut. In June, the Employment Index fell to its lowest non-COVID level since July 2019.

The Japanese Yen

Producer prices from Japan will influence Japanese Yen demand on Tuesday. Higher-than-expected producer prices could signal rising consumer price inflation, supporting a more hawkish Bank of Japan rate path. Expectations of a Q4 2024 BoJ rate hike could boost Yen demand.

Q2 2024 GDP numbers from Japan will also need consideration on Thursday. A return to growth could influence the BoJ’s interest rate trajectory. However, investors should also consider subcomponents, including private consumption, that may affect inflation trends.

On Friday, the Reuters Tankan Index will draw interest. An unexpected increase could signal an improving economy, supporting a Q4 2024 BoJ rate hike and fueling Yen demand.

Beyond the numbers, investors should monitor comments from the Bank of Japan, especially after the recent Yen carry trade unwind.

Out of China

On Thursday, the focus will be on economic data from China, including house prices, retail sales, industrial production, unemployment, and fixed asset investment. Weaker-than-expected numbers could signal a weaker demand environment and slower economic growth in Q3 2024.

However, weaker numbers could raise expectations of a fiscal stimulus package from Beijing that may limit the impact of weak numbers on the global financial markets.