What to watch: All Eyes on US Inflation Data This Week

The market's attention will be dominated by a critical central theme this week: inflation in the United States. The data released will be crucial towards determining the potential timing of Federal Reserve's (Fed) next move (interest rate cut) and, consequently, the direction of global financial market sentiment.

It's worth noting that the Fed, and particularly its Chair, Jerome Powell, is facing significant pressure from the Donald Trump administration to cut US interest rates. While weak US labour market data over the past three months has raised considerable concern about the American economy, the Fed is waiting for a pause or deceleration in inflation to send a clearer signal to the market regarding the future of its monetary policy. Of course, the erratic nature of trade tariff policy and the number of times that tariff deadlines have changed has not helped the hand of the Fed, either.

Therefore, the market's focus, from an economic data standpoint, will almost be exclusively on Tuesday's Consumer Price Index (CPI) data, which has the power to potentially define market sentiment for the rest of the month. In addition to consumer inflation, wholesale inflation figures from the US will also be released, complemented by key economic activity data from Japan, Australia, and the United Kingdom.

Finally, the Q2 corporate earnings season for US-listed companies is drawing to a close. Despite this, some important firms have yet to release their financial results, such as the technology bellwether, Cisco.

• Tuesday, 12th August: The Key Day of the Week

Australia: Interest Rate Decision

The Reserve Bank of Australia is expected to cut the interest rate by 25 bps, bringing the main rate to 3.6%. Watch for the impact on the AUD/USD pair.

United States: Consumer Price Index (CPI)

This is the most important event of the week, as the July inflation report will shape expectations for Fed policy. A month-on-month increase of 0.2% is expected, with the annualised rate at 2.8%.

• Analysis of the Outcome:

• o If the CPI is higher than expected: This would be interpreted as bad news for the markets. It would increase the likelihood of the Fed keeping interest rates "higher for longer," which would likely boost the dollar and trigger a sell-off in shares (particularly in the technology sector).
• o If the CPI is lower than expected: This would likely be very positive for risk sentiment. It would suggest that inflation is under control, paving the way for potential future rate cuts. This can weaken the dollar and likely lead to a rally in the stock markets.

United States: Q2 Corporate Earnings

Cisco Systems, a bellwether for networking and cybersecurity, will release its Q2 results. EPS is expected at $0.97 on revenue of $14.62B. Its performance will indicate the level of corporate investment in technological infrastructure.

• Thursday, 14th August

United Kingdom: Gross Domestic Product (GDP)

Economic growth data will be published, with a month-on-month variation of 0.2% expected for June. This release is anticipated to be a risk event for the Pound Sterling and the FTSE 100 index.

United States: Producer Price Index (PPI)

A month-on-month variation of 0.2% is expected for July. This figure is relevant as it measures wholesale inflation and is considered a leading indicator for consumer inflation. An elevated PPI would reinforce market concerns if the previous day's CPI was also high.

United States: Initial Jobless Claims

220k new claims for unemployment benefits are expected. This weekly labour market data point continues to be closely monitored by the Fed.

Japan: Gross Domestic Product (GDP)

The preliminary Q2 release is expected to show growth of 0.1%. The market will be attentive to the result's impact on the Yen and the Nikkei index.

• Friday, 15th August

United States: Retail Sales

To close the week, month-on-month retail sales for July are expected to have grown by 0.5%, with core sales (ex-autos) up by 0.2%. This is a key indicator of consumer spending and is closely tied to consumer confidence, serving as a vital measure of momentum for the US economy.

Conclusion:

The week of 11th-15th August is set to be one of high tension and potential volatility. The market narrative will revolve around the US CPI report on Tuesday. This single data point will dictate the direction of the dollar and major stock indices. Data from Japan, Australia, and the UK, along with retail sales figures, will act as important secondary factors, either confirming or challenging the main trend.

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