Eurozone inflation rose to 2.6% in July, a modest increase from 2.5% in June. Core inflation, which strips out volatile food and energy prices, remained steady at 2.9%. The data showed that services inflation, which accounts for nearly half of the index, was the largest driver, followed by food, alcohol, and tobacco. In response, the euro surged to its highest level against the dollar since December. Investors are now weighing the implications for future interest rate cuts by the European Central Bank (ECB). With the ECB maintaining a data dependent stance, the latest readings may indicate that another rate cut is further away than investors hoped.
In a widely anticipated move, The People’s Bank of China held its key loan rates steady yesterday, following cuts in July. The one-year loan prime rate (LPR) remains at 3.35%, while the five-year LPR stays at 3.85%. Policymakers opted for caution after recent efforts to rein in a surge in Chinese bond markets. The emphasised the importance of maintaining economic momentum without triggering significant market disruptions.
Japan’s trade data for July revealed a 10.3% year-on-year increase in exports, while imports surged by 16.6%, both surpassing forecasts. However, with exports falling short of expectations and imports exceeding predictions, the country still posted a trade deficit of 621.84 billion yen.
The yen is expected to see heightened volatility this week, with fluctuations likely within the 142-152 range against the dollar. This comes ahead of key speeches from Federal Reserve Chair Jerome Powell at the Jackson Hole Economic Symposium on Friday, where investors anticipate he may signal a potential rate cut in September. Additionally, Bank of Japan Governor Kazuo Ueda is set to offer further details on July’s rate hike during his remarks on Friday. Volatility in the USD/JPY pair has already increased, with bearish momentum emerging after the pair broke through support around 152 in late July.
All eyes are on the Federal Reserve this week as investors anticipate the release of the July meeting minutes, set to be made public today, and a key speech by Chair Jerome Powell at the on Friday. In their last meeting, central bankers maintained a cautious stance, emphasising that more progress is needed before considering rate cuts. However, July’s employment report revealed a faster-than-expected cooling in the labour market. Markets will be eager to see if this recent data will prompt policymakers to consider a rate cut in September.
In other news, the FTSE 100 ended Tuesday lower as lower crude prices weighed on energy stocks. Oil prices tumbled to near their lowest levels of 2024 as optimism grew over a possible ceasefire in the Israel-Hamas conflict. Brent crude dropped to $76.8 per barrel, marking a sharp decline both this week and month, while U.S. crude fell to $72.8 per barrel.
Later this week, we’ll see the release of PMI data from the UK, US, and Eurozone. Additionally, consumer confidence reports from the UK and Eurozone, along with Japanese inflation data, are expected. However, the main event will likely be Federal Reserve Chair Jerome Powell’s highly anticipated speech on Friday.
Nicola Tune, Portfolio Specialist
