Inflation in focus this week

Markets will be looking for this week’s release of the July inflation print for the US for any more signals on what the Fed will do when it meets in mid-September. Markets have endured substantially volatility in the last few weeks, prompted by disappointing jobs numbers for July. Since then conditions have eased somewhat and an upside surprise on inflation—currently expected at 0.2% m/m—may temper some of the market pricing for a 50bps cut from the Fed next month. Michelle Bowman, a Fed governor, said that inflation was still “uncomfortably above” target levels while the Kansas City Fed president, Jeffrey Schmid, said inflation was “close, but…still not quite there” in giving the Fed confidence in can ease policy sustainably. Inflation will be a theme this week with price data out from the UK and India as well.

Saudi Arabia has introduced new investment regulations covering investor rights, transferring funds as well as a new registration process for foreign investors, according to press reports. The new regulations appear to aim to improve the attractiveness of Saudi Arabia for foreign investors, giving them an equal status to local investors. The new rules will take effect in 2025.

Today’s Economic Data and Events

16:00 IN CPI y/y Jul: forecast 3.6%

16:00 IN industrial production y/y Jun: forecast 5.5%

Fixed Income

• The US yield curve flattened at the end of last week as markets priced out some of the sharp rate cut expectations for next month from the Federal Reserve. Yields on the 2yr UST added 1bps to 4.0531% while the 10yr yield dropped by about 5bps to 3.938%.
• Bond markets generally had a positive end to the week with gains across European, high-yield and emerging market bond indices.

FX

• The US dollar closed mixed at the end of last week, selling off some peers while gaining against the Euro. The single currency closed moderately lower on Friday, closing at 1.0917 while USDJPY pushed lower by 0.4% to 146.61. Sterling capped three days in a row of gains with a 0.1% rise against the dollar to settle at 1.2761.
• Commodity currencies were heavy against the US dollar with both AUDUSD and NZDUSD down 0.2% at 0.6578 and 0.6001 respectively. The Canadian dollar held flat at 1.373.

Equities

• Global equity markets remained in recovery mode at the end of last week with the Dow Jones closing up 0.1% on Friday while the S&P 500 and NASDAQ both recorded gains of about 0.5%. European markets were also positive with a gain of 0.1% in the EuroStoxx and a 0.3% rise in the FTSE.
• Asian markets were also positive with the Nikkei closing up 0.6% on Friday while the Hang Seng added 1.2%.

Commodities

• Oil prices extended gains for a fourth day on Friday with Brent futures closing up 0.6% at USD 79.66/b and WTI adding 0.9% to USD 76.84/b. Geopolitical headlines from the Middle East and Eastern Europe will add a geopolitical premium to prices in the near term.
• Gold closed higher on Friday, holding above USD 2,400/troy oz while copper and aluminimum forwards on the LME also managed gains.