A big pull back in equities and other risk assets was the big story of last week. But will the risk aversion continue?

North Korea

 

The situation on the Korean peninsula will be front and centre as investors weigh to what extent risk needs to be taken off the table. Threats of a strike on Guam and warnings about American retribution chilled markets last week, sparking a wave of risk-off selling in equities and demand for havens like the Swiss franc.

 

UK inflation, earnings & retail sales

 

It’s a busy week for sterling traders with three big releases on the hoof. First up on Tuesday is the key CPI inflation data, which remains the key factor dictating the Bank of England’s policy path. Last month the data showed a retreat from 2.9% to 2.6% amid signs that the worst of the exchange rate impact is over. However, the Bank still believes this will pick up again, peaking at 3% later in the year before easing back.

Meanwhile, average earnings data on Wednesday will show whether the tighter labour market is producing the eagerly-awaited uplift in wages. Falling real incomes has been a major source of central bank dovishness of late but with inflation easing this may moderate. Finally on Thursday is the monthly retail sales figures, which are the best guide to consumer spending and confidence.

 

FOMC minutes

 

Wednesday sees the release of minutes from the Fed’s July policy meeting and markets will be paying close attention to the details on the balance sheet and expected course of inflation.

The Fed dropped a big hint on balance sheet reduction, saying this is likely to begin soon. Market consensus is that this will now start tentatively in September.

Meanwhile doubts about inflation have been creeping in and this seems to have dampened hike expectations. The FOMC noted that they are ‘monitoring inflation developments closely’, which could be a signal that the Fed will blink and is no longer convinced that the strong labour market is enough to get inflation to its target rate. In June the Fed lowered its inflation outlook whilst raising its employment estimate. In other words it will take more than bumper nonfarm payrolls to get the Fed moving any quicker.

 

Economic Calendar

(All times BST)

Sunday, 13 August

23:45 – New Zealand retail sales

Monday, 14 August

00:50 – Japan preliminary GDP

03:00 – China industrial production, fixed asset investment

10:00 – Eurozone industrial production

Tuesday, 15 August

02:30 – Reserve Bank of Australia monetary policy meeting minutes

07:00 – German preliminary GDP

08:15 – Swiss PPI inflation

09:30 – UK CPI inflation, PPI input inflation

10:00 – German ZEW economic sentiment

13:30 – US retail sales, Empire State manufacturing index, import prices

Wednesday, 16 August

09:00 – Italian preliminary GDP

09:30 – UK average earnings, unemployment rate

13:30 – US building permits, housing starts

15:30 – US crude oil inventories

19:00 – FOMC meeting minutes

23:45 – New Zealand PPI input inflation

Thursday, 17 August

02:30 – Australia employment change, unemployment rate

09:30 – UK retail sales

10:00 – Eurozone final CPI inflation, trade balance

12:30 – ECB monetary policy meeting accounts

13:30 – Canada manufacturing sales

13:30 – US weekly unemployment claims, Philly Fed manufacturing index

14:15 – US capacity utilisation rate, industrial production

Friday, 18 August

07:00 – German PPI inflation

13:30 – Canada CPI inflation, retail sales

15:00 – Preliminary University of Michigan consumer sentiment

Corporate Calendar

 

Wednesday, 16 August

Target Corp (TGT) Q2/2018, EPS estimate 1.176

Admiral Group (ADM) – Interim results

Balfour Beatty (BBY) – Interim results

Thursday, 17 August

Gap Inc/The (GPS) – Q2/2018, EPS estimate 0.522

Hikma Pharmaceuticals (HIK) – Interim results

Kingfisher (KGF) – trading update

Friday, 18 August

Foot Locker Inc (FL) – Q2/2018, EPS estimate 0.909

Source: Bloomberg

 

 

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