The second week of the month tends to be one of the quieter weeks for economic announcements. Despite this, there are still a few tier-one data points for traders to be aware of. Watch for :
- US data – inflation and consumer sentiment are key
- Europe & Asia – German ZEW, UK growth, and a deluge of Chinese data
- LatAm – Brazilian inflation and retail sales
US data: Inflation indicators and consumer sentiment
- US CPI (Wed 1230GMT) & US PPI (Thu 1230GMT) – inflation indicators for the consumer (CPI) and producer (PPI) are expected to rise by +0.5% on a core basis month on month.
- US Michigan Sentiment (Thu 1330BST) – continued improvement is expected but last week’s negative surprise and upward revision shows that progress in recovery is still relatively slow
After a quiet start to the week, things start to get far more interesting on Wednesday as US inflation takes the focus for traders. All questions are surrounding how transitory the spike in inflation will prove to be. Recent signs are that inflation is beginning to show signs of peaking. The Fed’s preferred inflation gauge, the core PCE, was lower than expected last week, whilst ISM Manufacturing showed a reduction in the Prices Paid survey. This may open the door to downside risk in CPI and PPI next week.
Michigan Sentiment headline is expected to remain around current levels (82.0 exp, 81.2 last). Any upside surprise will be USD positive. AlIt is also worth keeping an eye on the Michigan 5 year Inflation Expectations which was 2.8% last month. Any reduction would reduce inflationary pressures on the FOMC to tighten policy and may see USD slip.
- USD volatility elevated on Wed and Thu after 1230GMT and Fri after 1400GMT.
- EUR/USD could see upside pressure towards 1.1900 if inflation pressures ease.
Europe & Asia:
- German ZEW Economic Sentiment (Tue 10th Aug, 0900GMT) 58.0 exp (63.3 previous)
- UK Prelim Q2 GDP (Thu 12th Aug, 0600GMT)
- China CPI (Mon 9th Aug, 0130GMT) +0.8% exp (+1.1% previous).
German ZEW Economic Sentiment is expected to be relatively steady, but attention will be on how the expectations component is developing. Right now, with fears over the impact of the delta COVID variant, it seems that whilst current conditions are holding up well, looking ahead there seems to be less confidence. This may weigh on Bund yields, and leave the euro under pressure. It could also weigh on the DAX too.
The UK has been ahead of the Eurozone with its recovery from the second COVID wave and this is likely to be reflected in the first reading of UK Q2 GDP data. The Eurozone beat expectations at +2.0% in the first Q2 reading and the expectations will be for the UK to make a strong recovery. Anything above forecast will strengthen GBP.
Chinese CPI inflation showed signs of rolling over last month and forecasts are for a second consecutive month of reduction. A moderation back to +0.8% will not be seen as a great sign for economic activity and may impact negatively on risk appetite. This will be the risk as the delta COVID variant begins to impact, but this may be seen more in the data next month.
- Risk appetite to be impacted negatively if Chinese CPI drops markedly.
- EUR/USD to see volatility off German ZEW.
- UK GDP to be impacted by UK GDP.
Latin America: Brazil Inflation and Retail Sales
- Brazil inflation (Tue 10th Aug, 1200GMT)
- Brazil Retail Sales (Wed 11th Aug, 1200GMT)
Rising inflation is a key concern for the Central Bank of Brazil. In July the inflation rate increased to 8.4% which is more than double the central bank’s year-end target and is a five-year high and increases expectations for another aggressive increase in interest rates (after the +1% increase last week.
However, with monthly inflation slowing to +0.53% in July, being less than consensus expectation, watch for any increase of less than +0.3% to temper expectations of rate hikes and help to strengthen the Brazilian real
Market Reaction: Any slip in inflation could strengthen BRL and drag USD/BRL back towards 5.00