Next week, financial markets will closely monitor a series of economic indicators, particularly US inflation data, which could significantly influence the Federal Reserve’s approach to interest rates. The June inflation Consumer Price Index (CPI) data are just around the corner. Tons are looking forward to seeing how this would affect the odds for a July cut.
Numerous countries are set to release potentially finance-shaking economic data on the global stage. These are heavily watched indicators such as retail sales, producer prices or consumer price indexes. These numbers would be historic and serve as key leading indicators of the health of each state’s economy, undoubtedly affecting market perception and sentiment.
Inflation Data and Fed Decisions
The immediate release of the US CPI data for June will be key. Most importantly, it will give investors and policymakers an idea of what’s to come on the inflation front for the country. In new data released, positive trends indicate that inflation pressures might be subsiding. This is largely due to the manufacturing sector’s paltry 10% share of the overall US GDP. The risks to the CPI could be skewed to the downside. This turns into a powerful case for the Fed to consider a rate cut.
During recent testimony before Congress, Fed Chair Jerome Powell did not dismiss the possibility of a July rate cut, which has heightened market speculation. After his comments, investors took a sledgehammer to their expectations. As of this writing, the market is pricing in roughly 65 bps of FOMC rate cuts this year. Guess what— investors are furiously pricing in these expected changes. This figure plummeted when then-President Donald Trump threatened additional tariffs. The net effect of this was to dramatically increase the chances of a July rate cut, dropping them down to just 5%.
That tension over trade policies still hovers, casting a shadow over economic forecasts and interest rate decisions. Investors are still waiting on inflation in India and waiting on clarity as to where the Fed is going to shift. The development highlights how closely US monetary policy and international trade relations are intertwined.
Key Economic Releases
Next week, a number of other important economic indicators will be released. These new data points, together with the CPI news, will serve to weigh heavily on market expectations. On Wednesday, the release of the Producer Price Index (PPI) numbers for June will give us a glimpse at the direction of wholesale inflation. As a quick reminder, the PPI data is one of the best early indicators of future CPI or consumer price data. Analysts and investors look to it as a cornerstone metric.
Additionally, on Thursday, investors can look forward to retail sales figures for the month of June. This indicator is one of the most watched metrics for a reason. Consumer spending makes up more than two-thirds of US economic activity. How well retail sales have done might strengthen or weaken hopes for consumer spending over the next few months.
To make matters worse, international markets will be releasing some vital economic data. UK employment report for May on Thursday will be a key release. In the UK, CPI figures are due on Wednesday. Tuesday’s Canadian CPI data will be closely watched, while Japan reveals its CPI data on Thursday. Together, each of these reports will inform our understanding of the state of the global economy. Beyond that, they can affect investor sentiment in all markets.
Global Economic Context
As the United States continues to wrestle with recession signals in its economic indicators, China is facing a different crisis. In their latest round of data, it was reported that China’s consumer prices increased for the first time in five months. Yet this improvement appears to be truly incidental at best. Producer prices plunged a record 4.6% year-over-year in June, worsening the May decline. This month’s drop underscores deepening deflationary pressures, at the worst point since the summer of 2021.
China’s economy is at a critical juncture amid a rocky post-pandemic reopening. Not only international trade pressures due to rampant overfishing, but NOAAs need to address pressures on the domestic consumption side. The ramifications of these changes reach far outside China and may affect global supply chain stability and commodity pricing.
As these different economic reports play out over the next week, market participants will be on high alert. US inflation data and Fed monetary policy decisions will have a big impact on market dynamics. Further, international economic indicators will be extremely influential in this developing situation.