Week of Aug 18

A solid economic calendar still left room for traders to focus on geopolitics, with the market reacting to US CPI and PPI figures, as well as stronger UK GDP figures and a rate cut by the RBA.

The main events of the week ahead include the minutes of the last FOMC meeting, flash PMIs and inflation figures from Japan and the UK.

Week in Review

From a data perspective, the big event of the week was the release of US inflation data. That included July CPI coming in unchanged as expected at 2.7%. Core inflation was the highest since February, at 3.1%, above the 3.0% forecast. But the data suggested that tariff effects were less than feared, prompting relief in the markets. That was short-lived as Thursday's PPI data came in hotter than expected at 3.7% above the 3.0% forecast and the highest since early 2022. Analysts attributed the jump in prices to tariff effects, which would put upward pressure on inflation in the future.

UK data through the week left a positive impression, after first showing increased weakness in the labour market. The unemployment rate remained unchanged at 4.7%, but a slowdown in average earnings left the impression that inflation pressures might be easing. This was followed up on Thursday with a first look at Q2 GDP coming in at 0.3%, well above the 0.1% expected and after a surprise uptick in June's monthly economic growth at 0.4% compared to 0.1% that had been forecast.

The RBA cut rates by 25bps as was widely expected, and the accompanying statement left hints that it could cut further through the year. Governor Michelle Bullock's position seemed more dovish after she didn't rule out back-to-back cuts.

Geopolitics played a heavy role in the markets this week amid expectations ahead of a planned meeting between US President Donald Trump and Russian President Vladimir Putin late on Friday, as Trump sought to find a way to reach a ceasefire in Ukraine.

Biggest Market Movers

• GBPUSD ended up ~1% among top performers this week after unemployment figures and a better-than-anticipated Q2 GDP report.
• Bitcoin hit a new record high in the middle of the week amid rising bets that the Fed will cut rates.
• Nasdaq and S&P 500 extended to new records due to rising odds that the Fed will cut.
• Crude prices declined through the week ahead of the Trump-Putin summit over the conflict in Ukraine but managed to stabilise.
• The Nasdaq rose to another record high midweek after inflation figures showed less impact from tariffs than feared.

Top Events in the Week Ahead

Markets will likely start the week digesting the outcome of the Trump-Russia meeting before turning their focus to the main economic data events. Following the mismatch between US CPI and PPI last week, the focus will likely shift to the FOMC minutes to gauge what could influence sentiment regarding rate cuts. They come out just a couple of days before the start of the Jackson Hole Symposium, which often serves as a springboard for the Fed to suggest upcoming monetary policy changes.

FOMC Minutes to Show Fed's Biases

The last meeting of the FOMC showed strong divisions among its members, with a rare case of two officials dissenting. On top of that, just two days after the meeting, there was a chilling jobs report that left more Fed officials hinting at rate cuts coming soon. Traders will be looking to see how much emphasis is put on the labour figures as opposed to inflation concerns. That will help confirm the September cut and whether to expect more easing beyond. Gold could react to the reading, with support below $3300 and resistance at $3400.

UK and Japanese Inflation Pressuring Monetary Policy

After a strong showing in economic growth, the BOE is expected to have more headroom to deal with persistently high inflation. Coupled with expectations for inflation to keep rising, it might mean markets fully price out any more easing this year. July UK CPI is expected to accelerate to 4.0% from 3.6%, while core inflation is projected to tick up to 3.8% from 3.7%. Cable could break 1.3600 if inflation comes in as hot, with downside levels at 1.3500 and 1.3364.

Later in the week is the release of Japan's July CPI, which is projected to remain unchanged at 3.3%. The BOJ might get a bit of relief with the projections for core inflation to tick down to 3.2% from 3.3% previously. The BOJ has tried to tame inflation by threatening to raise rates, but the market isn't pricing in an actual hike until the end of the year. The 50-day moving average near 146.50 appears to be holding off bears for now, with a break exposing the 145.00 handle. On the flip side, resistance for USDJPY sits at 148.00 and 149.00.

Flash August PMIs: Global Economic Health Check

Thursday sees the release of the preliminary PMI figures for August, with the focus likely on countries affected by the trade war. Japan's manufacturing PMI is projected to rise to 46.4 from 48.9 prior, staying below the 50 level, denoting a separation between expansion and contraction. Euro Area manufacturing is projected to slip back into contraction at 49.8, just below the 50.0 recorded a month ago. US manufacturing PMI is projected to stay just barely in contraction at 49.7 compared to 49.8 in July.

Other Events and Earnings

Monday has Euro Area trade figures. Tuesday sees Canadian inflation data. Japan's trade balance comes out on Wednesday. Thursday includes the US existing home sales. For Friday, UK retail sales are expected. Earnings releases are expected to be relatively light, with companies updating investors, including Palo Alto Networks, Home Depot, Lowe's, Target, Walmart, Alibaba and Intuit.