US retail earnings will provide insight into how consumers are coping with skyrocketing inflation and a range of data offer a check-up on the health of the UK economy.
Power issues will continue to plague Europe while New Zealand remains in the central bank spotlight.
Here’s your week ahead in the markets:
RETAILERS ROUND OUT PROFITS
Investors will be on the lookout for last week’s rare piece of good news on inflation, what the biggest US retailers have to say on rising prices.
Walmart and Target, which report second-quarter earnings on Tuesday and Wednesday respectively, recently lowered their forecasts, warning that inflation is squeezing margins and forcing consumers to scale back discretionary shopping.
Retailers’ outlook for consumer behavior will be key for investors looking to assess the pace of inflation. US consumer prices were flat last month, the largest monthly deceleration in price increases since 1973.
Other major retailers will report Home Depot on Tuesday and Lowe’s the following day, while US retail sales data, due on Wednesday, will give a full picture of how the consumer is faring.
EUROPE’S SICK GET SICKER
With the Bank of England‘s dire warnings still ringing in their ears, traders cannot expect cheers from the upcoming UK data.
UK consumer inflation figures for July, due on Wednesday, are likely to beat June’s 9.4% reading and head towards a peak forecast of 13.3% for October.
The BoE is forecasting a long and deep recession, which could be reflected in July retail sales data released on 19th August. Sales in June fell 5.8% yoy, while consumer confidence is at its lowest since 1974.
The British labor market has been robust so far; Almost 300,000 jobs were created in the quarter to May, leaving the unemployment rate at just 3.8%.
Adjusted for inflation, however, non-bonus wages fell by the most since records began in 2001. Another such reading could come on Tuesday as railroad workers prepare for more strikes that paralyzed public transport this summer.
STILL 50-50 GO DOWN UNDER
Tight labor markets in New Zealand and Australia are making it difficult for both the inscrutable Reserve Bank of New Zealand and the vocal Reserve Bank of Australia to find a middle ground on rate hikes.
Investors are confident that RBNZ Governor Adrian Orr is not yet ready to compromise on inflation and will hike rates by another 50 basis points on Wednesday amid slightly softening inflation expectations and falling house prices.
What the RBNZ is signaling about wage growth could affect current expectations for a 4% peak interest rate early next year.
Australia’s second-quarter wages data are due on the same day, and anecdotal evidence suggests the tightest labor market in five decades will tighten the RBA to 50 basis points next month and 225 basis points in four months — a pace it will hasn’t existed since the 1990s.
Norway’s central bank, meanwhile, is expected to hike interest rates when it meets on Thursday. It hiked rates by 50 basis points in June and some economists expect big hikes in August and September.
PRAY FOR RAIN
Already affected by gas supply shortages, Europe faces rising electricity prices and potential blackouts as hot summer weather pushes water levels in rivers, lakes and reservoirs to critically low levels.
On the German section of the Rhine, barges can only travel with part loads of coal, which threatens the power plant output. Norway, which experiences low rainfall after a winter with relatively little snow, could limit hydropower exports to sustain its reservoirs.
As a result, Germany’s 2023 base load contract, Europe’s benchmark, has hit record highs, nearly doubling since mid-June.
The cooling US housing market will be given some gut tests in the coming week. July housing starts data is due Tuesday after US new housing activity fell to a nine-month low in June.
Data on US existing home sales for the last month will be released on Thursday, after such sales in June fell to their lowest level in two years for the fifth straight month.
However, moderation in mortgage rates could underpin support for housing, as 30-year rates have trended lower since mid-June after doubling in 2022.
The SPDR S&P Homebuilders ETF has rallied 25% since mid-June after coming under pressure in the first half of the year.
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