Plenty this week to focus the mind

The S&P 500 continues to struggle through August as last week’s US inflation data failed to beat expectations. On Friday US Producer Prices year over year accelerated to 0.8% in July, from 0.2% in June and ahead of the 0.7% expected. The US dollar hit its highest level in a month, and 10-year US treasury yields climbed once again. The stronger dollar led to weaker commodity prices across the board, although the oil price remains resilient at around 85 dollars a barrel. According to a report in the weekend FT, global oil demand has hit a record peak and may move higher. The IEA monthly report put the strong demand down to resilient economic growth, travel, and China consumption. The efforts to cut carbon emissions are not yet apparently curbing our thirst for black gold apparently.

Stocks may have given back some of this year’s gains but overall remain close to the highs of the year. Equity investors may have their metal further tested as the Fed continues its work. We mentioned on Friday how the Fed need to issue treasuries to help pay its bills. Further upward pressure on interest rates could come from the Fed’s continued efforts to shrink its Covid bloated balance sheet. One can also not rule out further monetary tightening. Interest rates around the major developed markets may be close to peaking but there seems little will amongst central bankers to look to reduce them in the current climate.

It is the turn this week for the Bank of England to sweat over the monthly inflation report. UK inflation is forecast to fall to 6.8% in July. If that is the outcome this will be the he first time it has been below 7% since February last year. We also get the latest employment and retail sales data for the past month. The Fed releases the minutes of last month’s meeting this week, bond and equity investors will look for clues to the underlying mood amongst Fed members. The expectation, as we move closer to the year’s end, that the Fed will cut before the end of 2023, is waning. Forecasts are now anything between the end Q1 2024 and the beginning Q2. The U.S. Census Bureau will put out retail sales data for July on Tuesday. The consensus estimate is for spending to rise 0.4% month over month following a 0.2% increase in June.

Stocks in Europe are expected to open weaker today following Asia as concerns around the state of China’s economy continue. China’s shadow banking system causes concern from time to time and earlier today it was reported one of the leading wealth managers failed to meet payments on one of its high-yield products. There are some further key economic releases this week from the world’s second-largest economy including industrial production retail sales and employment reports.