Core CPI m/m
News release day: Tuesday, August 12
The United States core inflation in June came in lower than expected, and underlying price pressures remain subdued. Underlying price pressures refer to persistent and fundamental inflation, which excludes volatile factors such as commodities and seasonal energy fluctuations. This component takes into account changes in housing rental prices, education and healthcare services, and wages (which sustainably drive service sector inflation). Price increases in these areas lead to a persistent rise in inflation; however, current U.S. inflation data show no signs of underlying inflationary pressures.
Service sector inflation remains low due to weak consumer demand and slow wage growth caused by labor market weakness. Multiple economic reports, such as PCE and GDP, reflect this demand weakness. Personal Consumption Expenditures (PCE) in June barely grew after a decline in May, while the Q2 GDP report shows weak consumer spending growth. Consumer spending in Q2 rose by only 1.4%, which is an improvement from the very weak 0.5% growth in Q1, but these figures mark the weakest two consecutive quarters of consumer spending growth since the COVID crisis. This weak demand has so far kept service sector inflation low, and given the fragile labor market, service sector inflation is likely to remain subdued for the rest of the year.
Market Impact of the News:
Currently, U.S. inflation is primarily driven by the goods sector, which is why core inflation is receiving less attention from the market than before. If core inflation exceeds expectations, it could temporarily strengthen the U.S. dollar due to reduced expectations of Fed easing policy. This would be negative for risk assets such as stocks and cryptocurrencies; however, given the broad weakness in the labor market, any strengthening of the dollar is likely to be short lived.
Gold’s reaction in this scenario is mixed. While a stronger dollar could weaken gold, the risk of stagflation would likely lead to a recovery in gold after the initial market reaction.
If core inflation comes in lower than expected, expectations for interest rate cuts would increase, leading to a weaker dollar. In this scenario, risk sentiment would turn more risk on, boosting risk markets. Gold would benefit from the dollar’s weakening, and currencies against the dollar, especially the euro, would strengthen.
CPI m/m
News release day: Tuesday, August 12
The U.S. headline inflation index increased in June in line with expectations, with a 0.3% monthly rise serving as a warning for the Federal Reserve. This contributed to the Fed’s decision to hold rates steady during the July FOMC meeting. Currently, the headline inflation index is more closely watched by the market, as inflationary pressures are coming from the goods sector.
Prices of goods subject to import tariffs rose at their fastest pace in three years, including toys, household goods, and sports equipment. The Federal Reserve has repeatedly stated that it needs to see some of the impact of tariffs on inflation before considering rate cuts. The latest inflation reports show that producers are passing some of the tariff costs on to consumers.
Market Impact of the Data:
Given the broad weakness in the labor market, the headline inflation report will be closely watched by the market. If monthly inflation comes in higher than expected, it could temporarily strengthen the U.S. dollar due to reduced expectations of interest rate cuts. This would be negative for risk markets, such as stocks and cryptocurrencies. Gold’s reaction in this scenario could be mixed. While a stronger dollar would weaken gold, the risk of stagflation would likely lead to a recovery in gold after the data has been digested and the initial market reaction subsides. It is important to note that in this scenario, the dollar’s strengthening would be temporary and cannot last, as the labor market is weakening at a significant pace.
If monthly inflation comes in lower than expected, expectations for interest rate cuts would rise, creating a risk off sentiment in the market. In this scenario, the dollar would weaken, and risk assets would rise. Gold and the euro would also benefit from the dollar’s weakening.
CPI y/y
News release day: Tuesday, August 12
The annual inflation rate in the U.S. was reported at 2.9% in June, still significantly above the Federal Reserve’s target. Central banks do not wait for inflation to fully reach the target before starting to cut interest rates, as waiting for that would likely result in a recession. However, the Federal Reserve will need to be confident in the ongoing reduction of inflation before resuming interest rate cuts.
Currently, due to uncertainty regarding the extent of tariffs and their impact on inflation, officials are still not confident about inflation reduction. There is a disagreement within the Federal Reserve Board regarding the effect of tariffs on inflation. Most officials believe that tariffs have a lasting impact on inflation, while a few, such as Mr. Waller, argue that tariffs do not have a persistent effect on inflation, as workers lack bargaining power to demand higher wages due to the weak labor market, and there is no risk of rising service sector inflation (underlying inflation pressures).
On Tuesday’s report, the monthly inflation figures will be closely watched by the market.
Market Impact of the Data:
If annual inflation is higher than expected, it could temporarily strengthen the U.S. dollar. In the short term, this would reduce expectations for interest rate cuts and be negative for risk assets such as stocks and cryptocurrencies. Gold’s reaction in this scenario could be mixed. While a stronger dollar would weaken gold, the risk of stagflation would likely lead to gold rising after the initial market reaction.
If annual inflation comes in lower than expected, expectations for interest rate cuts would rise, and the dollar would weaken. In this scenario, risk markets would rise, and gold would benefit from the weakening dollar. Additionally, the euro would also strengthen in this scenario.
Core PPI
News release day: Thursday, August 14
Core producer inflation (excluding food and energy) remained unchanged in June. However, a mild increase in inflation is expected for this sector in July, as inflationary pressures are coming from services, portfolio management, and wholesale profit margins.
In the midst of economic uncertainty, there is greater demand for portfolio management services, and these centers charge higher fees. On the other hand, wholesale fees are expected to rise as companies begin passing costs on to consumers. However, we still expect slow growth in service sector costs, especially in discretionary services, as consumers, facing a weak labor market and uncertainty, are spending much more cautiously than before. The discretionary services sector, in particular, is facing reduced demand.
Market Impact of the Data:
If core producer inflation exceeds expectations, the dollar would temporarily strengthen, and risk markets such as stocks and cryptocurrencies would correct. In this scenario, expectations for rate cuts would decrease, and a risk off sentiment would emerge. The temporary strengthening of the dollar would likely be accompanied by a decline in gold. Additionally, the euro would weaken against the dollar in this scenario.
Conversely, if the data comes in lower than expected, the dollar would weaken, and risk markets, gold, and the euro would strengthen as expectations for interest rate cuts rise.
PPI
News release day: Thursday, August 14
Producer inflation remained unchanged in June. Although there were some signs of inflationary pressure from tariffs, it seems that tariffs have not had a significant impact on the PPI so far. However, an increase in PPI inflation is expected in July, particularly due to import tariffs.
Given the rise in oil prices at the end of June, there is a possibility of price growth in energy related sectors as well. In June, the cost of durable consumer goods increased, reflecting the impact of tariffs. Additionally, the prices of processed goods and raw materials (which are often used in the early stages of production) also increased in June, especially metals, which are subject to high tariffs and will have a significant effect in this sector.
Market Impact of the Data:
If producer inflation exceeds expectations, the dollar would strengthen in the short term. This strengthening of the dollar would be negative for risk markets, including stocks, cryptocurrencies, and gold. Additionally, under a risk off sentiment, there may be a slight strengthening of safe haven currencies such as the yen and the franc.
Conversely, if producer inflation comes in lower than expected, the dollar would weaken. In this scenario, the weakening of the dollar would benefit risk markets, gold, and the euro.
Unemployment Claims
News release day: Thursday, August 14
New unemployment claims for the week ending August 8 totaled 226,000, slightly above expectations. A concerning aspect of the report is that continuing claims for unemployment benefits reached over 1.97 million, the highest level since November 2021. The persistent rise in continuing claims indicates that unemployed individuals are facing significant challenges in finding new jobs. This aligns with the U.S. job data, which shows a sharp increase in the number of people searching for work for over 27 weeks.
Revised U.S. data for June, May, and April shows that the weakness in the labor market has been much more severe than the market had anticipated. Over the past three months, only an average of 35,000 jobs were created, far below the level needed for economic growth.
Before the revised data, the Federal Reserve kept interest rates unchanged, with Powell emphasizing that the labor market was strong. However, the new and revised employment data indicates that the Fed’s calculations were incorrect, and now they are facing a serious challenge with both inflation and a weak labor market.
Market Impact of the Data:
If the data comes in higher than expected (more unemployment claims than anticipated), it would signal further weakening of the labor market and lead to a weakening of the dollar. This scenario could create a risk off sentiment, in which gold and safe haven currencies such as the yen and the franc strengthen. The euro would also benefit from the dollar’s weakness. However, unemployment claims data typically has a weak impact on the market and, on its own, is unlikely to drive a trend.
Conversely, if the data comes in lower than expected, it would be seen as a sign of labor market improvement and could temporarily strengthen the dollar. However, in the medium term, the dollar’s strength will depend on further labor market data. In this scenario, gold would decline, and the euro would likely weaken temporarily.
Core Retail Sales
News release day: Friday, August 15
Core retail sales measure retail sales excluding automobiles. In June, core retail sales increased by 0.5%, surpassing expectations. Additionally, the growth in “control group” sales in the first half of the year was notable. However, strong sales in this sector are unlikely to be repeated in Q2, as the economy is now facing a much weaker labor market.
Other U.S. economic data shows very weak demand growth, and the combination of a weak labor market and low demand, along with tariff driven inflationary pressures, will be concerning for the Federal Reserve.
The Personal Consumption Expenditures (PCE) report for June shows the weakest demand growth over three consecutive months since the pandemic. The modest demand growth has been concentrated in non durable goods, while spending on durable goods, which are often affected by tariffs, remains weak.
Consumers are currently cutting non essential items from their shopping baskets, and a decline in retail sales is expected in July.
Market Impact of the Data:
If retail sales come in higher than expected, it would indicate an improvement in consumer demand and could temporarily strengthen the dollar. In contrast, in this scenario, gold and the euro could face temporary downward pressure. Risk markets, influenced by the strengthening of the dollar, are likely to face downward pressure in the short term.
If retail sales come in lower than expected, it would signal a decline in consumer demand and weaken the dollar. In this scenario, a risk off sentiment would emerge, benefiting gold and the euro.
If the data is mixed (for example, core retail sales are higher and overall retail sales are lower than expected), the market will react more to core retail sales, as they are a better gauge of demand. In such cases, attention to the details of the data, especially the control group sales, will be crucial.
Retail Sales
News release day: Friday, August 15
Retail sales in June came in well above expectations, growing by 0.6%. This data contrasts with other reports such as GDP and PCE, which show weak demand. However, the retail sales report accounts for about one third of total spending. Additionally, this report is not adjusted for inflation, meaning the value of goods purchased could increase with inflation even without a rise in demand.
In the June report, it appears that part of the retail sales growth was driven by price increases, as companies more widely passed on tariff costs to consumers in June.
In the July report, we expect retail sales to decline, as a new wave of Trump’s trade war began in July, which is affecting consumer sentiment, especially in the current environment where tariffs have influenced inflation.
Market Impact of the Data:
At this point in time, the market is not reacting strongly to retail sales unless there is a significant deviation from expectations, as weakness in demand is already evident in other data, and the market is focusing more on inflation and employment data.
If retail sales come in higher than expected, it would signal an improvement in consumer demand and lead to a strengthening of the dollar. In contrast, in this scenario, gold and risk markets would likely face temporary downward pressure due to the strengthening of the dollar. Additionally, the euro, as the U.S.’s competing economy, would be slightly negatively affected by the retail sales increase.
If retail sales come in lower than expected, it would signal a decline in consumer demand and weaken the dollar. In this scenario, expectations for rate cuts would rise, and a risk on sentiment would prevail, benefiting risk markets. Additionally, gold and the euro would profit from the weakened dollar.
Prelim UoM Consumer Sentiment
News release day: Friday, August 15
The consumer sentiment index increased slightly in July. The latest Michigan consumer sentiment survey was completed on July 28, right when the Trump administration reached a trade agreement with Japan and Europe, which contributed to a slight improvement in sentiment. However, the Consumer Sentiment index remains significantly lower than the levels seen before the elections.
57% of survey participants expect the unemployment rate to be higher in the future than it is currently. Expectations for business activity and the labor market remain weak, and the reports reflect ongoing economic challenges despite the uncertainty surrounding the government’s trade policies.
However, in the second half of the year, there is a possibility of an improvement in consumer sentiment, should a valid trade agreement with China be reached and expectations for interest rate cuts materialize.
Market Impact of the Data:
If the consumer sentiment index comes in higher than expected, it would signal an improvement in consumer economic sentiment, which could lead to increased demand and economic growth. As a result, the dollar would strengthen. In this scenario, risk markets are likely to have a negative short term reaction due to the strengthening of the dollar, but improved consumer sentiment would be positive for risk markets, especially stocks. In this scenario, gold and the euro would weaken.
If consumer sentiment comes in lower than expected, it would signal weakness in economic growth and weaken the dollar. This scenario would be negative for risk markets as it would create a risk off sentiment. However, in contrast, gold and the euro would strengthen in this scenario.
Prelim UoM Inflation Expectations
News release day: Friday, August 15
In the latest Michigan survey, both short term and long term inflation expectations have decreased. Consumers now expect prices to rise by 3.4% over the next 10 years, and short term inflation expectations have dropped to 4.5%. These declines are primarily due to the recent trade agreements with Japan and Europe.
The Federal Reserve needs to suppress inflation expectations in order to succeed in combating inflation. This is because, if inflation expectations remain high, there is a risk of inflation rising again. For this reason, despite inflation data coming in lower than expected, the Fed has kept interest rates unchanged and has strongly emphasized its hawkish stance.
Market Impact of the Data:
If inflation expectations increase, it would signal that the Fed is likely to keep interest rates steady and reduce expectations for rate cuts. In this scenario, the dollar would temporarily strengthen, and risk markets, gold, and the euro would correct.
Conversely, if inflation expectations decrease, it would signal a move toward interest rate cuts, weakening the dollar. This would be beneficial for risk markets, gold, and the euro.