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This Week’s Economic Data: FOMC, Rates, CPI & More

Plus500 | Tuesday 15 August 2023

With less than four months to the new year, many traders, analysts, and even average consumers may be waiting eagerly for any further clues as to how the global economy is faring. Hurdles from inflation to political unrest and uncertainty may still cause pressures on the global economic trajectory, raising questions about where it might head next.

As such, this week’s economic data releases which range from FOMC Minutes and retail sales data to CPI and inflation data reports around the world may be helpful for those who are seeking some insight into the state of the economy. Here's a breakdown of this week’s key economic events:

An image of economic charts, indicators, and data

Central Bank Surprise: China’s Biggest Rate Cut Since 2020 

Before delving into the upcoming events, it may be important to keep in mind the rate decisions in China, the world’s second-biggest economy. Whereby, this year, many central banks took a hawkish rate-hiking stance to tame inflation, today (Tuesday, August 15th), the People’s Bank of China (PBOC) decreased interest rates for the second time in three months. The rate reductions were unexpected and were deemed China’s biggest cut in three years. 

The PBOC reduced its one-year loan rate by 15 basis points, setting it at 2.5%, and lowered its short-term policy rates by 10 basis points. This move came as a surprise to most Bloomberg analysts and market watchers surveyed by Reuters who had anticipated that the central bank would maintain its existing rates unchanged.

It is believed that this shift in discourse has been prompted by the latest underwhelming economic data, which showed a slowdown in consumer spending, industrial outputs, and investment in China and a rising unemployment rate. In addition, deflation fears that arose last month as well as default risks and housing issues, may have also prompted the decision to lower rates.

Commerzbank economist, Tommy Wu, commented that these issues “add to the urgency that policymakers need to act fast before consumer and business confidence deteriorate sharply.” 

Naturally, the Chinese central bank’s monetary decision can have implications on the Forex markets, in general, and the Chinese yuan, in particular. According to Mizuho Bank strategist, Ken Cheung, “the surprising rate cut was a prompt response to support subdued credit data and China recovery (that) may unleash yuan depreciation pressures.” Accordingly, as of the time of the writing, the USD/CNH (USDCNH) forex pair is trading 0.2% higher. 


US Retail Sales, Housing Data & FOMC Minutes

Equally as important as the latest Chinese data and rate decisions, are this week’s US retail sales and FOMC minutes on Tuesday and Wednesday, respectively. These results can shed light on the world’s largest economy’s health and where it might be headed in the months to come. 

Starting with July’s US retail sales, the United States Consensus Bureau is scheduled to reveal how the retail sector has fared last months. The predictions point toward resilience in consumer spending and a probable strength in Q3. July's headline Retail Sales are expected to increase by 0.4%, higher than June's 0.2%. In addition, online sales, namely, Amazon (AMZN) Prime Day sales which took place on July 11-12, are expected to have boosted US consumer spending. 

These optimistic outlooks come despite the Federal Reserve’s persistent hawkishness this year. 

Moreover, in addition to today’s retail sales, traders may also want to track Wednesday’s US housing data which are believed to show a rebound in the home building and starts sectors in July as well as an improvement in industrial production. On the same day, the US central bank’s July 26th Minutes are expected to be released. While the FOMC may not be as volatility-inducing as other events, it can be a helpful indicator for the Fed’s upcoming rate decision meeting which is scheduled for September 19-20. 

Interestingly, the retail data are accompanied by retail earnings from Target (TGT) and Cisco (CSCO) on Wednesday, and Walmart (WMT) on Thursday. These earnings releases can also be helpful for those seeking more insights. 

CPI Release: What’s Inflation Like in the UK?

Wednesday, July 16th’s, UK CPI release will reveal a lot about the state of inflation in the UK and whether or not the Bank of England’s latest interest rate hikes have proven fruitful. According to some economists surveyed by Reuters, the UK’s annual inflation is expected to fall to 6.7% in July which is below the BoE’s expected 6.8% and June’s 7.9% rates. In addition, core inflation (which excludes food and energy) is expected to have fallen a tad to 6.8%.  

Still, it is believed that even if CPI shows some drops it would still be above the BoE’s target rate and would still mean that the BoE has some work left to tame inflation.  Moreover, some note that since last Friday, the UK Q2 GDP showed better-than-expected numbers, the notion of further rate hikes may be induced. We will have to wait and see how this week unfolds and how it affects the UK’s economy. 

Japan’s GDP Beat Expectations as Inflation Data Approaches

Today, Tuesday, Japan’s Q2 GDP beat expectations as it rose by 6% on an annual basis and by 1.5% on a quarterly base, marking the fastest growth in over two years. The growth is believed to be exacerbated by strong exports. Nonetheless, despite the positive momentum, some analysts posit that growth is “unlikely to be sustained.” One analyst from Capital Economics said that “while capital goods exports bounced back in June as the largest falls in overseas investment are now behind us, we do not expect a vigorous recovery.” Still, the data may have provided some much-needed assurance for many (at least in the meantime).  (Source:Reuters)

Furthermore, on Thursday, Japan’s inflation rates are expected to be released and the expectations are that these will show a slight increase. Whether or not the predictions will hold true is yet to be confirmed. 

To conclude, the current week holds significant importance for traders, analysts, and consumers. The pivotal economic events during this time not only offer a valuable understanding of the economic condition but also provide a form of direction for the upcoming months. This guidance aid can aid us in making more informed decisions in navigating the markets effectively.

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