Week Ahead: US CPI, Retail Sales, US-China trade truce deadline, RBA rate decision, UK unemployment, Japan GDP

Weekly Recap

U.S. stocks rose firmly last week despite big intraday swings. The Nasdaq 100 outperformed as AI and tech earnings boosted sentiment. The Nasdaq rose 3% across the week, reaching a fresh record high on Thursday, while the S&P 500 and the Dow Jones posted more muted moves, gaining 2.4% and 1.3% respectively amid mixed corporate earnings and economic data.   

Speculation surrounding Federal Reserve Chair Jerome Powell’s successor intensified last week after Trump nominated Stephen Miran, a known dove, to the Fed board. Reports that Fed Governor Christopher Waller, another known dove, was also a top contender to replace Powell, added to expectations of more rate cuts in the coming year. The USD fell 1% last week. 

Chip stocks benefited from Trump’s comments that semiconductor companies would be exempt from tariffs if they invested in chip manufacturing in the US. However, those that don’t will face 100% tariffs. Meanwhile, Trump’s tariffs on 90 countries came into effect on August 7th, which, combined with new tariffs on Gold bars from Switzerland and dovish Fed expectations, sent Gold prices 1% higher. 

US-China deadline (Tuesday) 

This week also sees the US-China tariff truce expire on August 12th, although this is likely to be extended for another 90 days, according to US Commerce Secretary Lutnick. Beijing has confirmed agreement on the extension, but the White House has yet to agree formally. The two sides are reportedly working towards a deal. The current pause comes after months of tariff escalation with US duties on Chinese imports reaching a peak of 145% whilst China retaliated with tariffs of up to 125% before a truce.  On August 7th, Trump announced new tariffs on imports from 90 countries, but most notably, the US implemented an extra 25% penalty on imports from India for the import of Russian oil. China could also be in the firing line here. The market will be looking for confirmation of an extension to this truce period. Signs of calming tensions and progress could pull Gold lower. 

RBA rate decision (Tuesday) 

The RBA is widely expected to cut interest rates by 25 basis points at this meeting, taking the cash rate to 3.6%. The meeting comes after the RBA caught the market off guard in the last meeting by pausing rate cuts despite expectations of a cut. The decision was taken with a 6-3 vote split. The RBA noted that inflation had continued to moderate, although the outlook remained uncertain. Policymakers were keen to wait for more data and maintained a cautious stance. Data released since the meeting supports the case for a cut after the unemployment rate unexpectedly rose in June to its highest level in three years, and inflation continued to cool in Q2, down to 2.1%. A dovish-sounding RBA could pull AUD/USD lower. 

UK jobs report (Tuesday) 

The outlook for the UK jobs market has darkened over recent months. Since last October’s budget, UK unemployment has risen from 4.3% to 4.7% in the three months to May. This was also up from 4% soon after the Labour government took over. The deterioration in the jobs market has been rapid. It has accelerated in recent months, particularly since April when the higher tax burden on employers came into effect and the minimum wage was increased. PMI data has added to evidence of a deteriorating picture, with many companies looking to either shed staff or are reluctant to take on new employees. As a result, UK unemployment could head towards 5% by the end of the year. The weaker jobs market, combined with weaker growth prospects, prompted the Bank of England to cut rates by another 25 basis points. However, with inflation looking sticky at 3.6% it could be difficult for the central bank to cut rates further. The market isn’t pricing in another 25 basis point reduction until February next year. Weak jobs data could add some pressure to GBP/USD. 

US CPI (Wednesday) 

Since April US CPI has gone from 2.4% annually to 2.7% year on year in June and while this is not at levels seen at the start of the year when CPI was at 3% the move higher has still caused some worry at the Federal Reserve especially where food prices are concerned which have also started to rise to 3% in June. The concern that Trump’s trade tariffs on certain goods have prompted some companies to pass on some of those increases, impacting the supply chain, which could make it harder for prices to come down in a way that the Federal Reserve would like. It is still early in the price adjustment process to see how these higher import taxes will ultimately be distributed. However, this also comes amid growing consumer fatigue, which is also making it difficult to raise prices in general. Some of the Fed members are more concerned about the US labour market, although fears of higher inflation ahead are keeping the Federal Reserve in a wait-and-see approach. The markets see the Fed potentially cutting rates in September in light of the recent week and the NFP report. Hotter inflation could pull the S&P 500 lower. 

Japanese GDP (Friday) 

Japanese GDP for Q2 is expected to contract -0.7% annually, after rising 2.2% in Q1. Exports weakened in the April to June period. However, services and private consumption are expected to have shown signs of recovery. In the most recent BoJ meeting, the central bank left rates unchanged at 0.5%, reiterating its readiness to hike rates if the economy and prices track forecasts. However, there was also an emphasis on high trade policy uncertainty. While the US-Japanese trade deals have reduced downside risks, tariff impacts are yet to fully emerge in the economy, with an adverse effect likely in H2. Wage growth is expected to rise by the end of the year, and underlying inflation is expected to reaccelerate gradually. Weaker-than-forecast GDP data could boost USD/JPY.

Chinese data (Friday) 

Friday sees the release of Chinese activity data, including industrial production, which is expected to ease to 6.2% year on year, down from 6.5%. Retail sales are seen easing to 4.6% annually, and fixed asset investment is expected to hold around 2.8% amid subdued private sector participation. However, this data is lagging and could be considered stale contingent on the US-China tariff news. That said, weaker-than-forecast data could hurt risk sentiment and pull the Hang Seng lower. 

US retail sales (Friday) 

US retail sales are expected to rise 0.5% month on month in July after increasing 0.6% in June. The data will be watched closely for any signs of a slowdown in consumer spending, given the recent weak jobs data, which could impact consumer confidence. Weaker-than-expected data could add to expectations surrounding the Federal Reserve rate cut next month and drag on the US dollar, boosting USD crosses such as EUR/USD. 

Trump – Putin Summit (Friday) 

A meeting between President Trump and Russia’s President Putin could take place on Friday in Alaska. Talks will focus on the situation in Ukraine and a move towards a ceasefire, although the Ukrainian President Zelensky has not been invited. Whilst Trump is keen for the Russia-Ukraine war to come to an end, Putin has recently reiterated that conditions for peace are far from being met. Trump recently shortened the deadline for Moscow to show progress towards the ceasefire or face new sanctions. Ukraine and European leaders remain cautious of any deal struck without Ukraine being present, given that it may involve territorial concessions. And therefore, it remains to be seen whether the summit produces any substance. Oil prices will be watched closely as an agreement could pull oil prices lower, while signs of peace still being a long way off could raise the prospect of oil sanctions on countries that import Russian oil. 

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