Michigan Survey Mixed – Market Wrap

The Meeting Minutes from the Federal Reserve are likely to be the main event during the coming week, following last week’s inflation report from the US economy which showed a slowed down in consumer and producer price inflation.

The FOMC minutes from the July 26-27 Federal Reserve policy meeting will shed some light on whether the latest 75 basis point hike marked peak US central bank hawkishness.

Federal Reserve Chair Jay Powell is expected to slow the pace of interest rate hikes with data released last week indicating an easing in US inflation rates. Watch out for big moves in the stocks, bonds, and the US dollar as the minutes are released as this is one of the last central banks released data points ahead of Jackson Hole.

The RBA meeting minutes is also set to be released this week and it will likely reveal the reasoning behind last month’s 50 basis point hike during the last Reserve Bank of Australia meeting.

At the last meeting, the RBA board said that rate hikes over recent months have been required to bring inflation down and to create a more sustainable demand and supply, adding that the RBA was committing to take further tightening but it is not on a pre-set path, as the size and timing will be guided by the incoming data.

The committee noted that 2022 CPI would be around 7-3/4% and a little above 4% in 2023. The central bank reaffirmed its commitment to doing what is necessary to ensure inflation returns to target while paying attention to the global outlook, which stays clouded by the war in Ukraine, its effect on prices of energy and commodities, and China’s anti-COVID measures. 

Elsewhere, Q2 GDP updates will be released for Japan and the Eurozone watched with particular interest. Japan registered a 0.1% contraction in Q1 with a 2.5% quarter-on-quarter rebound anticipated for Q2.

Meanwhile, in the Eurozone, GDP growth is predicted to remain weak at 0.7% as price pressures continue. Eurozone inflation data on Thursday is likely to confirm persistently high inflation.

The United Kingdom releases a series of key economic data amidst the cost-of-living crisis, which is likely to get even worse during the winter months, as highlighted by the UK central bank.

UK employment figures are expected to remain relatively similar to those seen in recent months. Inflation data is projected to remain high on the back of June’s new 40-year peak of 9.4%.

Overall, the market should continue the “peak inflation” trade bearing some unknown catalyst. The US dollar index will also be under scrutiny after staging a late comeback last Friday, following a bout of brief weakness.