Introduction to Markets
The US July inflation numbers are the main focus of today’s market agenda. It’s expected that the headline CPI will rise by 0.2% month-over-month, with the annual figure increasing from 2.7% to 2.8%. The core CPI is estimated to accelerate to 0.3% month-over-month and 3% year-over-year, up from 2.9%. These numbers are crucial as they will help determine the impact of US President Trump’s trade policy and could influence the US central bank’s reaction function when it meets in September.
Impact on the US Central Bank
The recent dramatic downward revisions in the July payrolls report have prompted calls for action by more Fed governors. If the inflation numbers are not upwardly surprising, it will strengthen the current market belief that the Fed will resume its easing cycle in September. This is because downside employment risks are starting to outweigh upward inflation risks. In fact, if the inflation numbers are more benign, or if there’s weaker activity and labor market data later this month, the market might even consider the possibility of a 50 basis points rate cut at the September meeting, rather than the expected 25 basis points.
Global Market Trends
Asian markets are trading slightly positive after US President Trump extended the pause on tariffs on Chinese goods for another 90 days. China also released a similar statement. Japanese stock markets are outperforming, with the Nikkei reaching a new record high as the nation returns from a holiday. In the UK, labor market data was better than expected, with employment rising and the unemployment rate stabilizing. This confirms that the UK central bank won’t accelerate its quarterly cutting pace.
News and Views
The Reserve Bank of Australia has lowered its key policy rate by 25 basis points to 3.6%, bringing the cumulative easing efforts to 75 basis points this year. The RBA expects underlying inflation to continue hovering around the midpoint of the 2-3% target range, assuming an extension of the current gradual easing path. However, there’s still a risk of households and firms delaying expenditure due to uncertainty about the outlook. Australian money markets assume two more rate cuts, bringing the policy rate to 3.1% by February 2026.
UK Retail Sales
UK same-store retail sales rose by 1.8% year-over-year in July, down from 2.7% in June. Food sales increased by 3.2% year-over-year, supported by warm weather and a busy sporting calendar. However, higher spending was driven more by food inflation than stronger demand. The head of the British Retail Consortium warned that many retailers will face tough decisions over stores and jobs if the upcoming Autumn Budget adds further taxes.
Conclusion
In conclusion, today’s market agenda is focused on the US July inflation numbers, which will help determine the impact of US President Trump’s trade policy and influence the US central bank’s reaction function. The recent dramatic downward revisions in the July payrolls report have prompted calls for action by more Fed governors. Global market trends are also being influenced by the extension of the pause on tariffs on Chinese goods and the better-than-expected UK labor market data. The Reserve Bank of Australia’s decision to lower its key policy rate and the UK retail sales data are also significant developments that will impact the markets. As the markets continue to evolve, it’s essential to stay informed about the latest trends and developments.
