Week of July 21

A busy week saw Chinese trade and GDP figures disappoint, while US and UK inflation accelerated, and progress was made on several trade deals.

The coming week presents a lighter economic calendar, with key highlights including the ECB's rate decision, flash PMIs, and US durable goods orders.

Week in Review

Markets got off to a rocky start due to concerns about increased trade tensions, but announcements of deals later in the week allowed risk appetite to return.

US headline inflation came in hotter than expected at 2.7%, up from 2.4% the month prior. The rise was attributed to the effects of tariffs finally being felt. Core inflation ticked up to 2.9% from 2.8% as expected. Interestingly, the US June import price index missed expectations, coming in at -0.2% on an annual basis, compared to the 0.4% forecast. Markets initially reacted to the US CPI data by pushing forward rate cut expectations, still, they pared back a day later when core PPI came in flat instead of the 0.3% forecast.

China's trade balance was higher than forecast, with the surplus rising to $115 billion from $103 billion as imports grew more slowly than expected. At the same time, exports accelerated to a 5.8% annual growth rate from 4.8%. China's Q2 GDP was in line with forecasts at 1.1%, bringing the annual growth rate to 5.2%. This was below the projected 5.3% but still above the central government's target of 5.0%.

The UK's inflation rate accelerated faster than expected to 3.6% from 3.4%. The core rate rose to 3.7% from 3.5%, marking the fastest pace since the start of last year. However, markets focused on the jobs data a day later, where the unemployment rate rose to 4.7%, a four-year high. Following the data, futures priced in a 90% chance of a BOE rate cut in August.

Canada's June inflation came in hotter than expected at 1.9%, up from 1.7% in the prior month. The BOC's preferred measure, the trimmed mean, remained unchanged, rather than falling by a decimal as economists had predicted.

Japan's June CPI came in as projected at 3.3%, down from 3.5% in May, with the so-called "core-core" rate rising to 3.4% from 3.3% previously.

In geopolitics, US President Donald Trump began the week by threatening new tariffs, including on the EU and Mexico, and later announced that he would impose blanket tariffs on up to 150 small countries. Later in the week, Indonesia reached a deal with the US, and Trump suggested an agreement with India was imminent. Trump also threatened to impose hefty sanctions on countries that bought oil from Russia if a ceasefire in Ukraine was not reached in 50 days.

Biggest Market Movers

• The FTSE 100 hit a record high early in the week as the chances of a BOE rate cut increased, but then paused before resuming its upward push on Friday.
• The Nasdaq scored consecutive record highs as Nvidia was allowed to resume chip sales to China, with digital assets also providing a boost following the passage of crypto legislation through Congress.
• The dollar gained for the second consecutive week as higher inflation implied that the Fed might hold rates high for longer.
• The yen saw the largest decline among the majors, suffering from a stronger dollar, lower inflation in Japan, and uncertainty surrounding the upcoming elections.

Top Events in The Week Ahead

A relatively quiet economic calendar allows the market to focus on geopolitical events, such as the election results in Japan and the potential for highly anticipated trade negotiation announcements.

ECB to Cut Amid Uncertainty

The ECB is widely expected to hold rates unchanged at the end of its meeting on Thursday, with a lack of clarity around the trade situation likely to weigh on the outlook. There is little agreement on whether the pause will continue afterwards, with markets likely to focus keenly on President Christine Lagarde's post-rate decision comments to gauge sentiment for a rate cut at the next meeting. The EURUSD has near-term support at the 50-day moving average of 1.1500, followed by the 1.1400 handle. Meanwhile, resistance lies at 1.1730 and the peak of 1.1835.

Economic Growth Indicators In Focus

Thursday is the release of flash PMI figures with particular attention on Europe, where German manufacturing is expected to improve but stay in contraction. With the DAX finding support at 24K, another record high towards 25K is probable. But losing the local support could open the door to 23500.

The British composite PMI is projected to decline, suggesting a slowdown in growth. The cable recently bounced off at 1.3400, but while trading below the 50-day moving average at 1.3500, the risk of further losses remains. Next major support sits at 1.3200.

Other Events, Earnings

Monday has New Zealand inflation figures. The minutes of the latest RBA meeting are released on Tuesday. For Wednesday, the US existing home sales are expected. Thursday includes German GfK consumer confidence survey results. Friday sees UK retail sales.

Q2 earnings season ramps up throughout the week, with notable names on the docket, including Verizon, Coca-Cola, RTX, Alphabet, Tesla, NextEra, Lloyds, Vodafone, Honeywell, Blackstone, Intel, NatWest, and Aon.