US CPI, Retail Earnings, UK Inflation

Investing.com — Wall Street looks set to start the week slightly higher, with the focus on the latest inflation data as investors look for confirmation that the Federal Reserve will begin cutting interest rates in September. The quarterly earnings season is coming to an end, but the retail sector will be the main focus in the coming days.

1. July’s CPI looms large

The future path of US interest rates continues to be the main focus of investors and thus the US release on Wednesday will be the key economic data number of the week.

Federal Reserve Governor Michelle Bowman noted some “welcome” progress on inflation over the past two months in an interview on Saturday, toning down her usually dovish tone, but still added that inflation remains “uncomfortably above” the central bank’s 2% target.

In late July, the Fed kept the policy rate in the same 5.25%-5.50% range it has been in for more than a year, but signaled that a rate cut could happen soon what September, if inflation continues to cool.

July CPI data is expected to show that inflation continued to move closer to the Fed’s 2% annual target, with forecasts calling for annual core inflation to ease to 3.2%, the lowest since April 2021.

Fed funds futures imply a 49% chance of a half-point rate cut in September, after climbing to 100% at one point last week.

2. Futures are higher with inflation in mind

US futures rose on Monday as investors were cautious at the start of the week, including the release of key inflation data as well as strong gains in the retail sector.

By 04:00 ET (08:00 GMT), the contract was 40 points, or 0.1 percent, higher, up 11 points, or 0.2 percent, and up 60 points, or 0.3%.

Wall Street’s main indexes ended last week with minor losses, marking some recovery from the earlier week’s crash.

The data helped ease investor concerns about the strength of the labor market and the state of the US economy, and attention now turns to the second part of the Federal Reserve’s mandate – the consumer price index (see above).

Investors will also have a chance to hear from several Fed officials, including the Atlanta Fed President, the Philadelphia Fed President and the Chicago Fed President.

Comments from a trio of Fed policymakers on Thursday indicated they were more confident that inflation was cooling enough to cut rates.

3. Earnings season is coming to an end

The quarterly earnings season is in its final stages, with most companies already reporting their quarterly financial results.

But there are still some notable US names to report in the coming week, including retailers Home Depot (NYSE: ) and Walmart (NYSE: ).

Investors will be paying attention to what retailers have to say about the resilience of consumer spending, a major driver of economic growth, especially given some recent signs of weakness in economic data.

Other big names on the earnings record are Cisco Systems (NASDAQ: ) and Fox Corporation (NASDAQ: ).

In Europe, Switzerland’s biggest bank UBS (SIX:) reports earnings on Wednesday, while it’s a big week for the insurance sector, with Hannover Re (OTC:), Aviva (LON:), NN Group (AS:) (NASDAQ:) and Admiral (LON:) prepare to report.

Some of China’s biggest internet firms are also set to report their June quarter results this week, including Tencent Holdings (OTC:), Alibaba (NYSE:) Group and JD (NASDAQ:).com.

4. UK inflation also in focus

The UK has a busy economic data calendar this week as investors look for clues on whether the rate cut cycle will continue next month.

The BoE cut interest rates for the first time in 2020 earlier this month, and markets are currently pricing in a roughly 33% chance of another quarter-point cut at its September meeting.

Data will be released on Tuesday, followed a day later by figures, which will be closely watched for signs of lingering price pressures, particularly in the still-hot services sector.

Catherine Mann, an external member of the Bank of England’s Monetary Policy Committee, said in a podcast published on Monday that prices of goods and services should rise again and wage pressures in the economy could take years to dissipate.

“There is an upward crisis in both the wage-setting process and the price process, and … it may very well be structural, having been created in this period of very high inflation over the last couple of years,” he said it.

“This ratchet will take a long time to erode,” she added.

Mann voted against this month’s rate cut in a tight 5-4 decision.

5. Crude keeps climbing

Crude oil prices edged higher on Monday, rising for a fifth straight session as concerns over the US economy eased, while geopolitical tensions in the Middle East remained supportive.

By 04:00 ET, WTI futures were up 0.9% at $77.55 a barrel, while the contract was up 0.7% at $80.25 a barrel .

Both crude oil benchmarks gained more than 3% last week, their first positive week in five.

Iran and Hezbollah have vowed to retaliate for the assassination of Hamas leader Ismail Haniyeh and Hezbollah military commander Fuad Shukr.

Axio reported on Sunday that Israeli intelligence believes Iran will attack Israel directly and within days.

Fears that a larger war in the Middle East will disrupt oil supplies from the crude-rich region have caused traders to place a higher risk premium on oil prices.

Upbeat US economic data suggesting a recession in the world’s biggest fuel consumer may not be imminent helped the oil market last week.