Introduction: U.S. Inflation Data Takes Center Stage

U.S. inflation data takes center stage this week, following US employment figures that fell short of expectations and raised serious questions about the effectiveness of the Federal Reserve raising interest rates at its next three meetings.

This coincides with a noticeable easing of geopolitical tensions in the Middle East and the potential return of the Strait of Hormuz to normal operations. If this occurs, we may witness a positive impact like what happened last June, when inflation indicators declined as oil prices fell to their lowest levels since the outbreak of tensions at the end of February.

What to expect from the US inflation data this week?

The Consumer Price Index (CPI) for July is expected to decline to 3.4%, after falling to 3.5% in June, down from 4.2% in May.

These expectations align with HSBC experts' assessments, who noted a surprising weakness in several components of the inflation index. If this reading is confirmed, it could strengthen the case for interest rates to remain unchanged until the end of the year.

First: The US Economy: A Data-Packed Week

In addition to the headline inflation index, markets are anticipating a number of important data releases this week:

Besides the US inflation index, markets will be monitoring several key US economic indicators, most notably:

·         Existing Home Sales, with expectations of a slight decline.

·         Producer Price Index, with expectations of a monthly increase.

·         Retail Sales.

·         Under the University of Michigan Preliminary Market Indicators Survey for August, which may provide an indication of US consumer activity.

·         Weekly Unemployment Claims.

Second: The European Economy

Second: The European Economy

Unlike the US economy, Europe is expected to have a relatively quiet week in terms of economic data. Markets will be watching the second reading of the Eurozone GDP, with expectations of it remaining stable at around 1%. This reading will indicate the extent to which the European economy is affected by the repercussions of the Strait of Hormuz closure and the disruptions to the oil supply chain, on which the European economy is heavily dependent.

Inflation data will also be released for several major European economies, in addition to European industrial production and employment figures.

As for the UK economy, the preliminary estimate of GDP data for the second quarter will be released, with expectations that it will remain below 1%, which could reinforce the economic slowdown and the impact of energy supply chain disruptions on the UK.

In addition, the UK will release the following important economic indicators:

·         Industrial production and trade data.

·         Retail sales.

Third. The Asian Economy

A. The Japanese Economy

Markets are still closely monitoring the performance of the Japanese yen following direct interventions by Japanese authorities in cooperation with the US.

The Japanese yen benefited from weak US employment data, which led to a significant improvement of more than 0.6% in the yen.

However, markets are still looking for any indications of when the Bank of Japan will raise interest rates, as a direct tool to rescue the Japanese yen and prevent it from falling to alarming levels.

Japan will release several important economic data points, most notably:

The current account balance for June.

The producer price inflation rate for July, with expectations of a significant rise due to higher energy costs.

B. China

Like the European economy, the Chinese economy is expected to have a quiet week in terms of economic data, with money supply and credit being the most anticipated indicators.

The Chinese economy continues to struggle with a slowdown in domestic consumption and financing, amidst government efforts to collect taxes accumulated over the past quarter-century to secure the necessary funding to stimulate various economic sectors.

Weekly Summary

The US Consumer Price Index (CPI) for July remains the biggest and most influential event of the week in terms of global monetary policy trends. A lower-than-expected reading would reinforce the assumption of no-interest-rate growth and could weaken the dollar, while a higher reading would open the door to serious questions about the timeline for interest rate hikes at the next three meetings of the US Federal Reserve.