Wall Street continued to rebound last Friday. However, stock indices closed the week in the red, highlighting the market’s nervousness and uncertainty. This week, we will learn two key indicators for the U.S. economy: inflation and retail sales. The VIX fear index, after rising to an extremely high level of 65.7 points last week, managed to drop significantly to around 20 points but still remains at an elevated level. The yields of U.S. bonds, after a strong drop, managed to rebound but still remain in a downtrend in the medium term. The EUR/USD rate consolidated around the 1.09 level.
Over the weekend, we received additional comments from the Federal Reserve aimed at calming the markets. Michelle Bowman spoke out, still seeing a risk of inflation growth and a strong labor market persisting. She remains cautious in her approach to adjusting the current monetary policy stance. She admitted that the July increase in the unemployment rate reflects weaker employment, as job seekers and those entering the market need more time to find work. However, layoffs remain low. Bowman does not see the increase to 4.3 percent as a sign of weakness and an impending recession. However, she added that if the process of disinflation continues, it will be appropriate to cut interest rates to prevent excessive monetary policy restriction.
This week, investors will assess the ongoing trend of price formation and will also receive clues about the condition of private consumption. After recent declines, the CPI index may indicate stabilization. Forecasts suggest the same level of 3 percent y/y as in June. The core CPI is expected to be slightly reduced from 3.3 to 3.3 percent y/y. Monthly dynamics will also be key. Expectations here suggest a possible increase to 0.2 percent. If we receive a surprise in the form of lower figures, then the Fed will receive another argument for cutting the cost of money at the September meeting. A precursor to Wednesday’s report will be Tuesday’s publication of producer prices (PPI).
From domestic data, the preliminary reading of GDP for the second quarter of this year will be significant. An acceleration of growth dynamics from 2 percent to 2.8 percent is expected. In addition, we will receive the final CPI inflation. Preliminary data showed a clear acceleration in dynamics to 4.2 percent y/y. A slight uptick in core inflation is also forecasted, from 3.6 percent in June to 3.8 percent in July (y/y).
Ludwik Kotecki from the RPP spoke on the prospects of monetary policy. In his opinion, interest rates should be lowered as early as the first quarter of 2025 if the GDP for the whole of 2024 falls below the 3 percent threshold and at the same time if forecasts point to a lack of its acceleration in the following year.
The zloty is strengthening today against the euro and the dollar. The EUR/PLN rate is dropping to 4.3140 and USD/PLN is below 3.95.
Łukasz Zembik Oanda TMS Brokers
Source: https://ceo.com.pl/tydzien-na-rynkach-pod-znakiem-inflacji-cpi-oraz-sprzedazy-detalicznej-w-usa-91014
