Revenues from US retailers will give insight into how consumers are coping with soaring inflation, and a range of data offer a balance sheet of the health of the UK economy.
Electricity problems will continue to plague Europe, while the central bank’s spotlight will be on New Zealand.
Here’s your week ahead in the markets:
RETAILERS ROUND UP RESULTS
Investors will be watching what the biggest U.S. retailers have to say about rising prices, following rare good inflation news last week.
Walmart and Target, which report their second-quarter results on Tuesday and Wednesday respectively, recently lowered their forecasts and warned that inflation was squeezing margins and forcing consumers to cut back on discretionary purchases.
Retailers’ outlook on consumer behavior will be key for investors looking to gauge the pace of inflation. Consumer prices in the United States were unchanged last month, the sharpest month-over-month deceleration in price increases since 1973.
Other reports from major retailers include Home Depot on Tuesday and Lowe’s the next day, while U.S. retail sales data, due on Wednesday, will provide an overview of the consumer picture.
EUROPE’S SICK MAN IS GETTING SICKER
With dire warnings from the Bank of England still ringing in their ears, traders can’t expect any cheers from the UK data ahead.
British consumer inflation figures for July, due on Wednesday, are likely to top June’s 9.4%, heading for a peak of 13.3% forecast for October.
The BoE predicts a long and deep recession, evidence of which may come from the July retail sales data released on August 19. Sales fell 5.8% year-on-year in June, while consumer confidence is at its lowest since 1974.
The UK labor market has so far been robust; nearly 300,000 jobs were added in the May quarter, leaving unemployment at just 3.8%.
However, adjusted for inflation, pay excluding bonuses has fallen the most since records began in 2001. Another such reading could emerge on Tuesday, as railway workers brace for more strikes that have crippled transport public this summer.
ALWAYS 50-50 DOWN
Tight labor markets in New Zealand and Australia are making it difficult for the inscrutable Reserve Bank of New Zealand and the more vocal Reserve Bank of Australia to find common ground on rate hikes.
Investors are certain that RBNZ Governor Adrian Orr is not yet ready to compromise on inflation and will hike rates another 50 basis points on Wednesday, despite inflation expectations easing slightly and the fall in real estate prices.
What the RBNZ signals about wage growth could influence current expectations of a maximum policy rate of 4% early next year.
Second quarter Australian payroll data is due the same day, and anecdotal signs suggest the tightest labor market in five decades will also raise the RBA to 50bps next month and 225bps tightening in four months – a pace not seen since the 1990s.
Norway’s central bank is expected to raise rates at its meeting on Thursday. It raised rates by 50 basis points in June and some economists expect big hikes in August and September.
PRAY FOR RAIN
Already reeling from gas supply shortages, Europe is facing soaring electricity prices and possible blackouts, as sweltering summer weather sends oil levels plummeting. water in rivers, lakes and reservoirs at extremely low levels.
Along the German section of the Rhine, barges can only navigate with partial loads of coal, threatening the production of power stations. Norway, which is experiencing low rainfall after a winter with relatively little snow, could cap hydropower exports to preserve its reservoirs.
As a result, Germany’s 2023 baseload contract, the European benchmark, has reached record highs, nearly doubling since mid-June.
The cooling US housing market is getting some gut checks over the coming week. July housing starts data are due on Tuesday, after new U.S. homebuilding activity fell to a nine-month low in June.
U.S. existing home sales data for the past month is released Thursday after those sales fell for a fifth consecutive month in June to the lowest level in two years.
However, a moderation in mortgage rates could support housing support, with the 30-year rate trending lower since mid-June after doubling in 2022.
The SPDR S&P homebuilder ETF has rebounded 25% since mid-June after being beaten in the first half.
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