After a turbulent week for stocks, the markets are facing another potentially volatile week as the trade war and key economic data take centerstage.
Investors will be monitoring any additional escalations or developments regarding the U.S.-China trade war and currency war. Until last week, many economists were optimistic about the overall health of the U.S. economy. However, President Donald Trump’s announcement that the U.S. would be slapping 10% tariffs on the remaining $300 billion worth of Chinese goods has started to change some economists’ positions.
“We had said the US economy was sound but for the trade war. We expected and got a bounceback in domestic demand in Q2,” UBS wrote in a note Friday. “However, Trump's announcement 10 days ago that tariffs on the final tranche of Chinese imports would be implemented September 1 has changed the outlook. The new tariffs will slow growth. We anticipate the Fed eases policy further because of the slowdown and their fears of increased uncertainty.”
Inflation: Still below target
The key data being released this week could provide some insight into the current state of the economy. CPI inflation data for July is scheduled to be released Tuesday, and July retail sales data will be released Thursday.
Economists polled by Bloomberg are expecting core CPI to have risen 0.2% from June and 2.1% from the same period last year.
“With trade uncertainty on the rise and core inflation still well below target, the FOMC is unlikely to react strongly to an upside surprise in CPI,” Credit Suisse said in a note Thursday. “Any tariff-related increases will likely be written-off as transitory. A downside surprise should strengthen the views of Fed officials who see the need for more policy accommodation based on inflation softness alone.”
Retail sales: Positive spending should continue
Investors will shift their focus to retail sales for July on Thursday. As other parts of the economy, such as manufacturing, get hit by the trade war, consumer spending has remained a bright spot and the main driver of GDP growth in the U.S.
“Aside from a decline in February, retail sales have increased every month so far this year. That’s consistent with the elevated confidence data and suggests consumers remain comfortable with their spending habits despite increased risks to the outlook,” according to Wells Fargo. “As long as the labor market remains healthy, this positive consumer spending trend should continue.”
Meanwhile, earnings season has slowed down significantly with over 90% of the S&P 500’s market cap having already released results. This week chipmakers Nvidia and Applied Materials, retail behemoth Walmart, department stores JCPenney and Macy’s will report quarterly results.
Monday: Monthly Budget Statement, July (-$120 billion expected, -$76.9 billion in June)
Tuesday: NFIB Small Business Optimism, July (104.2 expected, 103.3 in June); CPI month-on-month, July (+0.3% expected, +0.1% in June); CPI excluding Food & Energy month-on-month, July (+0.2% expected, +0.3% in June); CPI year-on-year, July (+1.7% expected, +1.6% in June)
Wednesday: MBA Mortgage Applications, week ended August 9 (5.3% prior); Import Price Index month-on-month, July (-0.1% expected, -0.9% in June)
Thursday: Empire Manufacturing, August (1.9 expected, 4.3 in July); Philadelphia Fed Business Outlook, August (10.0 expected, 21.8 in July); Retail Sales Advance month-on-month, July (+0.3% expected, +0.4% in June); Retail Sales excluding Auto month-on-month, July (+0.4% expected, +0.4% in June); Retail Sales excluding Auto and Gas, July (+0.5% expected, +0.7% in June); Initial Jobless Claims, week ended August 10 (212,000 expected, 209,000 prior); Industrial Production month-on-month, July (+0.1% expected, 0.0% in June); Capacity Utilization, July (77.9% expected, 77.9% in June); Bloomberg Consumer Comfort, week ended August 11 (62.9 prior); Net Long-term TIC Flows, June ($3.5 billion prior); Total Net TIC Flows, June ($32.9 billion prior)
Friday: Housing Starts, July (1.255 million expected, 1.253 million in June); Building Permits, July (1.270 million expected, 1.232 million in June revised); University of Michigan Sentiment, August (97.4 expected, 98.4 in July)
Friday: Deere & Co (DE) before market open
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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