Market sentiment may remain fragile following the recent rout, as investors turn their attention to key indicators from major economies this week. In particular, US inflation data will be crucial in shaping global market trends.
ADVERTISEMENTFollowing the market turbulence over the past few weeks, several crucial economic data releases and events will be in focus this week, including the second reading of the Eurozone's quarterly GDP, US inflation figures for July, and the Reserve Bank of New Zealand's interest rate decision.
Despite signs of recovering sentiment, market volatility may persist depending on how investors react to these economic indicators and central bank policies.
Europe
The spotlight will be on the Eurozone's flash GDP data this week, as economic growth is a key factor the European Central Bank (ECB) uses to shape its monetary policy. GDP readings come in three versions: preliminary flash, flash, and revised data. The preliminary figures indicated that the Eurozone economy grew by 0.3% quarter on quarter, following stagnation in the first quarter and negative growth in the final quarter of 2023. The flash data is expected to confirm this 0.3% growth.
Germany will also release its ZEW economic sentiment index for July, a crucial indicator of the economic outlook in the Eurozone. Germany has been significantly impacted by Russia's aggression in Ukraine since 2022.
Recent data show that the German economy improved in 2024, with the ZEW sentiment rising for the seventh consecutive month in June. Although the index declined in July, consensus suggests that it may still reflect a positive outlook.
In the UK, a range of key data will be released this week, including the CPI, retail sales and employment figures for July, and the GDP reading for June. Inflation fell to 2% year on year in June, aligning with the Bank of England's (BOE) target.
The BOE implemented its first rate cut since 2020 earlier this month, which caused a sharp decline in the British pound. However, a resurgence in inflation could delay further rate reductions and potentially support the pound. Consensus forecasts suggest that inflation may rise to 2.3% in July.
Meanwhile, the UK's unemployment rate is expected to rise by 4.5% in June from 4.4% in May. Average earnings are anticipated to increase by 4.6% in the three months to June, a slower pace compared to the 5.7% growth previously. This moderation in wage growth could indicate further cooling of inflation.
The United States
The US CPI for July will be crucial for Wall Street and global markets, as it serves as the primary gauge for the Federal Reserve's interest rate decisions. The annual consumer price index rose by 3% in June, marking the lowest increase since June 2023. A similar 3% rise is anticipated for July. However, a hotter-than-expected reading could prompt the Fed to delay its decision on a rate cut and potentially unsettle the stock markets once again.
Other key economic data to watch include the US Producer Price Index (PPI) and retail sales figures for July. The PPI, which measures factory costs and serves as an important inflation indicator, is expected to rise by 0.2% from the previous month after a 2.6% year-on-year increase in June - the highest since March 2023.
Retail sales data, reflecting consumer spending power, are projected to grow by 0.3% month on month after stalling in June. A stronger-than-expected retail sales figure could signal increased inflationary pressure.
Asia Pacific
The RBNZ's rate decision is a significant event for the Asia Pacific region. The bank paused rate hikes for the eighth consecutive time in July but has adopted a more dovish stance due to slowing economic growth and rising unemployment. Despite this shift, analysts expect the RBNZ to maintain the official cash rate at this meeting, as annual inflation remains at 3.3%, above the targeted range of 1-3%.
China is scheduled to release several key economic indicators for July, including industrial production, retail sales, and fixed asset investment. These metrics will provide insights into the country's economic trajectory, with consensus suggesting that China's economic recovery may continue to accelerate.
Finally, Australia's wage growth index and employment data will also influence the Australian dollar and local stock markets this week.
