Week Ahead of August 8

Markets will try to keep the summer rally alive over the next week but it could be tricky with the Fed planting the message that rates will keep rising once central bankers come back from their August respite.

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The week in review

Headlines last week were dominated by House Speaker Pelosi's trip to Taiwan. Although there was talk about trade agreements, the trip was mostly about how China perceived it as a threat. China’s military action spooked markets somewhat with equities mostly looking through it, while haven assets gained.

Risk sentiment improved after Pelosi’s departure, with major US indices led by tech breaking to June highs. There is, however, some worry over the scope of economic reprisals and the ending of official dialogue with the US from the Asian Giant and Yen might become popular again.

On the policy front, the BOE and RBA hiked rates by 50bps as expected but their respective currencies dropped thanks to weak accompanying guidance. The Bank of England said it expects the UK to enter a recession this year, while inflation is forecast to rise as high as 13%. 

Bond yields picked up, boosting the USD as traders reconsidered the idea that the Fed was about to pivot on rate hikes. A series of hawkish Fed speakers including noted doves came out to insist more hikes were coming. The hawkish tone was corroborated by strong economic data including a blowout NFP on Friday that saw 528K jobs created, more than double the 250K expected.

Top events for the week ahead

Meme stocks

For those thinking about hanging up their trading boots for the month of August, there was a hint over the past week that there might still be opportunities left.

Meme stocks, like HKD and Getty Images, have seen a resurgence in popularity among traders looking to cash in on market conditions. But these stocks can be very volatile, making it difficult to time a trade. For this reason, meme stocks are considered very risky.

Inflation data

The highlight is likely to be US CPI data, which is forecast to show the first drop in months to 8.9%. But that might be offset by core inflation expected to heat up to 6.1% from 5.9% prior. A worse than anticipated inflation number could effectively put an end to the recent market optimism. 

On Wednesday, China reports its CPI figures as well, but Germany's HICP is forecast to increase to 8.5%. Euro zone inflation is fast catching up to the US', but without an ECB acting as aggressively to bring it under control. A hotter number here could raise speculation for how much European rates could be hiked in September. EUR/USD price action could be contained around $1.0200.

Other data and earnings

The UK publishes the first look at GDP for June on Friday. US PPI on Thursday could also rile up markets, along with Tuesday's labor cost figures. Swiss unemployment data could give some insight into what the SNB will do next. USD/CHF holds firm above 0.95. 

Earnings season will have peaked, but there are still some important names scheduled for next week including Coinbase, Continental, Disney and Siemens.