Market news today - where are we at with UK inflation?

IT'LL be A-levels dominating the attention of students and their parents as they nervously await results on Thursday. For the rest of us, and for market watchers, the key date is Wednesday: did the Consumer Prices Index fall as far as expected in July? How will markets react if it didn't? We look ahead to market events this week.

Inflation data

The June data were more encouraging than expected, with headline inflation dropping to 7.9%.  That partly led the Bank of England to ever-so-slightly slow its tightening campaign by lifting interest rates by 0.25 percentage points, a smaller increase than the half-point rise the previous month.

We’re not out of the woods yet but the Bank of England’s tight monetary policy would appear to finally be working.  Another dip in inflation is expected, with economists polled by Reuters expecting the July data to show a fall in annual inflation to 6.7%. Again, slightly lower than the Bank of England’s 6.8% forecast and a significant drop from 7.9% in June.

Beyond the headline rate, investors will be closely watching core inflation, which strips out volatile food and energy prices and is viewed as a better gauge of underlying price pressures. This is proving to be more stubborn to shift. It edged down only slightly last month to 6.9%, and economists polled by Reuters expect that to come in at a broadly similar rate of 6.8% in July.

The US view

Across the pond, July’s inflation release also brought some good news for the US Federal Reserve last week, with the headline rate of 3.2% coming in slightly lower than analysts had expected. On Wednesday the Federal Reserve will release the minutes from its July meeting - giving us some insight into the deliberations about whether the central bank should raise interest rates again this year.

The US central bank has taken a somewhat different approach to the UK, so far, initiating a stop-start approach on interest rate hikes. After deciding against a rate rise in June the Fed raised its policy rate to a range of between 5.25% and 5.5% at its July meeting. The reasons it gave were ‘elevated’ inflationary pressure, a hot jobs market and consistent economic growth.

Headline inflation rose less than expected in July, with the core inflation category, which strips out the volatile food and energy components of the calculation, increasing at 0.2% - the same pace as in June. The annual rate was 4.7%, down from 4.8% in June and the lowest level since October 2021. This suggests the Fed could once again hold off from a further rise when it holds its September meeting.

Much like over here the possibility of a recession still lingers. But the likelihood of recession in the US in the near term remains low.

Chinese deflation

Ahead of all that we have data from China on national retail sales and industrial output on Tuesday. That will also be closely watched given that the country’s economy has fallen into deflation after consumer prices declined in July.

The world’s second-biggest economy appears to be struggling to get off the starting block post-Covid. Contrary to what had been expected. But industrial output and consumer spending figures due to be published on Tuesday by the National Bureau of Statistics will provide some more insight on the state of China’s recovery.

After retail sales increased by 3.1% in June, economists polled by Reuters are forecasting a year-on-year rise of 4.7% in July. Better, but still a sharp slowdown from 12.7% growth in May. Annual industrial output for July is expected to have increased 4.4%, in line with growth the previous month.

US retail

When it comes to stocks to watch in the UK it’s very quiet between now and the end of the month. But in the US the retail sector will be in the spotlight.

Target is first and investors will be keeping an eye on the company’s guidance following the retail giant’s sales and revenue slump. In June, Target saw its market value lose $15.7 billion as its shares fell close to their 52-week low.

TJX, the parent company of TK Maxx, Marshalls and Home Goods, will also report earnings on Tuesday along with Home Depot which releases second-quarter earnings. Home Depot will be the first major retailer to report earnings this week. It missed revenue expectations in the first quarter and lowered its profit and sales outlook for the year. And fears of a housing market weakened by falling home sales and mortgage increases won’t help the home improvement chain.

Finally, on Thursday we hear from Walmart. That too missed revenue expectations in the first quarter and lowered its profit and sales outlook for the year. But in May Walmart raised its sales and profit outlook for the year after it said it had seen a boost in sales in grocery and online.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.