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The Macro Forces To Pay Attention To In The Weeks Ahead

Equity markets snapped their three-week losing streak as market participants regained confidence from weakening oil prices, the rally in the dollar finally ran out of steam, and inflation came down. For the week, the Dow climbed 2.7%, the S&P 500 added 3.7%, and the tech-focused Nasdaq surged over 4%.

The week ahead is packed with key inflation reports, including the release of the consumer and producer price index, and retail sales data, which will determine where markets are headed next.

Inflation Update

The week ahead is packed with crucial inflation data that could determine the Federal Reserve’s interest rate decision in its next meeting and, subsequently, the direction of where the market is headed next.

US CPI Data, Source: Investing.com

The Bureau of Labor Statistics (BLS) is set to release the Consumer Price Index (CPI) for the month of August on Tuesday. CPI, which tracks the rise in prices on the demand side, is forecasted to rise slightly to 8.7%, compared to 8.5% in July. While inflation has slowly been trending down from the 40-year peak of 9.1% seen in June due to falling energy costs, prices for other goods and services are continuing to rise.

US Monthly PPI Data, Source: Investing.com

On the other end of the Isle is the Producer Price Index (PPI), which tracks inflation on the supply side. PPI is expected to continue to decline in August by around 0.3%, after showing an unexpected contraction of 0.5% in July. The report, which many consumers as a leading indicator for inflation, has risen by 8.9% annually, which is the lowest level seen since October 2021. As demand continues to weaken, driven by inflation, PPI could fall further, triggering a pivot from the Federal Reserve and, subsequently, a rebound in the stock indices.

Retail Sales

Retail sales will be another crucial factor in tracking the robustness of consumer demand in the face of tightening macroeconomic conditions. The US Census Bureau is set to release the report on Retail Sales for the month of August on Thursday. Market participants are estimating Retail sales to remain stagnant in August, similar to the numbers seen in July.

US Retail Sales Growth, Source: TradingEconomics

Retail Sales have been slowing in recent months due to several factors, including the impact of inflation and declining consumer confidence, which has impacted purchasing habits. The Fed has considered retail Sales to be robust throughout the year, but weakness in the indicator could lead to different policy decisions.

S&P 500 Chart

S&P 500 Chart, Source: TradingView

Bottom Line

The week ahead is packed with crucial reports on sales and inflation, which will surely impact the decision-making ability of the Federal Reserve in its next meeting, and subsequently decide where the markets are headed next.

 
 

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