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.

Source: ETX Capital

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