While the sudden spike in volatility which triggered last week’s ‘market reset’ seems to have faded, thankfully, the question of whether the US Federal Reserve has been too slow to cut rates remains.

As Shares went to press, traders were waiting for July’s inflation figures, with producer prices expected to have risen by 2.3% against 2.6% in June (and core prices seen rising by 2.7% against 3%), while consumer prices are expected to have risen by 3% at the headline level, the same as in June (and core prices are seen rising by 3.2% against 3.3%).

If the rate of inflation comes in significantly below these levels we would expect bets on a September cut in interest rates to rocket, which should see markets resume their upward trend, but if inflation remains stubbornly high those bets will pushed out to the end of the year which could cause further weakness.

In the UK, headline inflation for July is actually expected to turn higher, to 2.3% against 2% in June, as favourable comparisons with energy prices in 2023 drop out of the monthly figures.

‘Core inflation, which excludes more volatile energy and food prices, will receive as much focus as the headline figure,’ says James Gard at Morningstar.

‘This measure was forecast to fall to 3.4% in June but remained at 3.5%, the same as in May. In July, the expectation is that core CPI will ease to 3.3%. Services inflation is also a worry for the Bank of England, remaining at 5.7% last month, and policymakers will be keen to see this figure fall back too.’

Looking ahead, Friday sees the release of UK retail sales for July, which should show a recovery after a weather-affected June, while Monday we will get UK house price data but the rest of the week looks fairly quiet in terms of economic data.

‹ Previous2024-08-15Next ›