Week Ahead: US CPI in the spotlight

Summer markets can often spring sharp market moves, as thin liquidity causes price action to shift for little reason. For example, we haven’t seen anything like last August’s volatility when the carry trade was questioned as Japan was embarking on policy normalisation. Instead this year has seen increasing policy divergence between central banks, highlighted by the recent “hawkish cut” by the Bank of England with no more policy easing seen this year, in contrast to more than three 25bps Fed reductions now priced in by the market for 2025.

Interestingly, these rate cuts are forecast to happen before Fed Chair Powell leaves, not after. The latest US inflation report is due this week and is likely to see core around the 3% mark, while we know the unemployment rate sits in the low 4% area. Do three and half cuts in that environment seem plausible? Every data point is likely to take on bigger significance going forward, with two more CPI reports and another NFP release before that ever-increasingly important September FOMC meeting. Each one will be a proper test of the current dovish market conviction. There could also be a focus on next week’s Fed symposium at Jackson Hole – will policymakers/Powell further disappoint or finally please the POTUS?

US stocks ignored the bearish weekly engulfing candle and rebounded over recent session on their way to yet more probable record highs. The performance of the equal-weight and actual S&P 500 index is diverging further after mostly stellar earnings from the tech titans. The White House’s choice to exempt the largest US firms from tariff pain has also helped. It seems AI capex is now the key underlying driver for the major indices as a whole now – this only matters when it matters.

As for the dollar, we highlighted the ‘death cross’ on the weekly Dollar Index chart. It was the first time the 50-day SMA had crossed below the 200-day SMA since January 2021. The previous two weekly bearish indicators of this type marked the bottom for USD and a rally followed. This time around, the index has found support at the 50-day SMA which has been resistance for most of 2025. President Trump is scheduled to meet Russian president Putin over the coming days to discuss the war in Ukraine, after US special envoy Witkoff visited Moscow last week. Details of the meeting are still unclear, but most remain doubtful that a major breakthrough will be reached. That could impact the Dollar Index if the euro gets sold on any disappointment.

In Brief: major data releases of the week

Tuesday, 12 August 2025

– RBA Meeting: The bank is expected to cut the cash rate by 25bps to 3.6%. After surprisingly keeping rates steady in July, Q2 inflation and recent jobs data came in softer than expected, giving the green light for another cut. 

– UK Jobs: Unemployment is forecast to remain at 4.7% and average earnings (ex-bonus) at 5%, after a material jump last time. There will be a focus on payroll employment after the big drop in previous months, though the MPC seemed relaxed about the jobs market recently.

– US CPI: The headline print is expected one-tenth lower at 0.2% m/m and 2.8% y/y in July. The core is forecast at 0.3% m/m and 3% y/y. Core goods (ex-autos) will be watched as that showed evidence of the tariff impact previously. But softer housing rents should offset this.

Thursday, 14 August 2025

– Australia Jobs: Expectations are for a recovery in employment growth of 25k, after the flat prints in May and June. Unemployment is forecast at 4.2%, after jumping up to 4.3% in June.

– UK GDP: June m/m GDP is predicted to print at 0.1% from -0.1% with q/q at 0.1% from 0.7%. The first quarter was boosted by front-loading exports ahead of US tariffs. Annual growth could be a touch higher than the OBR’s 1% estimate.

Friday, 15 August 2025

– China data: Economic activity is expected to continue moderating with housing price weakness ongoing. Industrial production likely slowed after a strong print in June and retail sales are forecast to slow as policy impact eases. Fixed asset investment is seen steady around 2.8%.

– US Retail Sales: Consensus expects a headline print of 0.5%, which would mean back-to-back rises. But demand doubts remain with policy and trade uncertainty, though lower interest rates could offset some of these concerns.

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