What to Watch Across Markets This Week: August 12, 2024

• Overview of U.S. Economic Concerns
• Federal Reserve Possible Actions Based on Inflation Data
• Bank of England Rate Decision
• RBNZ Official Cash Rate Announcement

A Look at What’s Happening in the U.S.

Concerns regarding the U.S. economy entering a recession have mostly eased, but markets are still on edge. Some investors worry that the Fed’s hesitation in cutting rates may have caused the downturn. However, the Fed’s caution has been driven by persistent inflation, but inflationary pressures appear to be easing in a more sustainable way. This drives the spotlight to this week’s release of U.S. inflation data, a key event that could make or break the market’s direction.

The U.S. Inflation Data

On Wednesday, August 14, 2024, at 4:30 PM GMT+4 (Dubai Time), the Consumer Price Index (CPI) m/m, which reflects current inflation trends, is expected to rise from -0.1% to 0.2%, indicating a slight increase in inflation. However, this figure remains lower than the 0.3% rate seen earlier in the year, suggesting that inflation is still relatively contained. Meanwhile, the Consumer Price Index (CPI) y/y, which offers a broader view of inflation, is anticipated to remain steady at 0.3%, indicating no change in long-term inflation pressures. If these figures meet expectations, the Federal Reserve might feel more confident in lowering interest rates, seeing that inflation risks are lower and that rate cuts could help boost economic growth without causing significant inflation, as per analyst analysis.

Expectations for the UK

The U.K. has a busy week ahead, with key economic data releases providing mixed signals for investors as they seek clues on whether the Bank of England (BOE) will continue its rate-cutting cycle next month. After the BOE cut rates for the first time since 2020 in its last meeting, markets are speculating about the possibility of another cut in September.

On Wednesday, August 14, 2024, the Office for National Statistics will release the Consumer Price Index (CPI) y/y, with expectations for a rise from 2.0% to 2.3%, indicating inflationary pressures. Following this, on Thursday, August 15, 2024, the Gross Domestic Product (GDP) m/m data is set to be released at 10:00 AM GMT+4 (Dubai Time). The market expects a decline from 0.4%, the highest level this year, to a forecasted 0.1%. Finally, on Friday, August 16, 2024, the Retail Sales m/m data will be published, also at 10:00 AM GMT+4 (Dubai Time), with an expected increase from -1.2% to 0.6%, suggesting an improvement in retail activity.

This mix of inflation signals, GDP slowdown, and retail recovery will be crucial in shaping expectations for the BOE’s next policy move.

What's Unfolding in New Zealand

On Wednesday, August 14, 2024, at 6:00 AM GMT+4 (Dubai Time), the Reserve Bank of New Zealand (RBNZ) is scheduled to announce its Official Cash Rate. The rate is anticipated to stay at 5.50%, where it has remained since July 12, 2023, making New Zealand an outlier among major central banks. This week's decision is particularly crucial, with economists and investors divided on whether the RBNZ will start cutting interest rates or hold off until there is clearer evidence that inflation is returning to its target.