Week Ahead Economic Preview: Week Of 15 August 2022

 | Aug 14, 2022 07:59

Meeting minutes from the Fed and the RBA will be released in the coming week while Q2 GDP data for the Eurozone, Japan, Thailand, the Netherlands and Poland will be watched closely for updates on the macroeconomy. At the same time, industrial production performance will be eagerly anticipated for the largest two economies - the US and China - with retail sales figures also coming to light for the former. PMI data have indicated a general slowdown in growth as the economic environment faces headwinds from geopolitical uncertainty, high inflation and supply constraints. The week will end with sentiment and retail sales data for the UK.

Q2 GDP updates will flow thick and fast, with those for Japan and the Eurozone watched with particular interest. Japan registered a 0.1% contraction in Q1 with a 2.5% (QoQ) rebound anticipated for Q2. Meanwhile, in the Eurozone, GDP growth is predicted to remain weak at 0.7% (Q1: 0.5%) as price pressures continue. Eurozone inflation data on Thursday is likely to confirm persistently high inflation.

The Fed FOMC minutes from the July 26-27 meeting will shed some light on whether the latest 75 basis point hike marked peak Fed hawkishness. Fed Chair Jay Powell is expected to slow the pace of interest rate hikes with data released last week indicating an easing in US inflation rates. Elsewhere, RBA meeting minutes will divulge the reasoning behind last month's 50 basis point hike.

Over in the UK, a series of key economic data will be assessed for the impact of the cost-of-living crisis, starting off with employment figures which are expected to remain relatively similar to those seen in recent months. Inflation data is projected to remain high on the back of June's new 40-year peak of 9.4%. Sentiment and retail sales data at the end of the weak is expected to remain subdued and reflect the relatively bleak trading environment.

Finally, China industrial production data will unveil the extent of recovery following lockdowns during the second quarter. In the US, the manufacturing sector is expected to grow slightly following a 0.2% contraction in June.

h2 Some relief for the US economy as inflation cools and labor market stays resilient/h2

In line with the S&P Global PMI data, latest figures signaled cooling inflation rates across the US, with CPI rising by 8.5% year-on-year in July (down from 9.1% in June). This is primarily thanks to falling energy and petrol prices. Moreover, data suggests that inflation rates have already peaked, and market expectations suggest that upward pressures on prices will continue to ease in the second half of the year.

The recent numbers were welcomed by the Fed, stock markets and consumers alike. Nonetheless, inflation rates remain elevated and above the central bank's target 2%. Reining back inflation will still be a concern for the Fed.

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Additionally, the data provided by the US Bureau of Labor Statistics, highlights the resilience of the job market. More than 500,000 jobs were reported to have been added during July. This gives Fed the assurance and room to further continue tightening monetary policy. All in all, we expect further interest rate hikes, but perhaps a slower trajectory of incline compared to the vigorous 75 base point increases observed over the past two consecutive months.