Six Fundamentals for the week: US inflation and Trump-Putin summit stand out

Will peace return to the old continent? That may still take time, but the Trump-Putin summit in Alaska is undoubtedly spinning heads. For markets, any tenth of a percentage in US inflation data is critical – and there’s more in store. 

1) RBA set to cut rates, probably signal the next moves will wait

Tuesday, 4:30 GMT. The Reserve Bank of Australia (RBA) is widely expected to slash interest rates for the third time in this cycle. The Sydney-based institution was slow to to begin reducing its borrowing costs, and has been going at a snail’s pace.

The recent soft Australian inflation figures cemented expectations for the upcoming decision. Still, Governor Michele Bullock and her colleagues are set to reiterate they will hold onto their gradual approach, potentially boosting the Australian Dollar (AUD).

2) US inflation data may reflect tariffs in a more meaningful manner

Tuesday, 12:30 GMT. America’s Consumer Price Index (CPI) report for July is the top release this week, and it could trigger massive market moves.

In June, core CPI – which excludes volatile energy and food prices – rose by a moderate 0.2%, seemingly continuing to indicate calm price rises. However, the underlying data showed a gap between an ongoing deceleration in costs of services and a small acceleration in goods’ inflation, especially of products which tend to be imported. 

The impact of tariffs will likely be more pronounced in the upcoming report for July. An increase of 0.3% in core CPI would cool hopes for three interest rate cuts by the Federal Reserve (Fed) this year.

What reactions can be expected? Hot inflation will likely boost the US Dollar while hurting Stocks and Gold. It may also trigger the ire of President Donald Trump, who insisted there is no inflation.

A not-too-hot report would strengthen the notion that the Fed is on course to slash borrowing costs in every meeting until year-end. It would also weigh on the Greenback while boosting Stocks and Gold.

3) US Producer prices complete the inflation picture

Thursday, 12:30. The Producer Price Index (PPI) report for July provides additional inflation information and forms part of the calculations for the Personal Consumption Expenditure (PCE) figures released late in the month. The PCE is the Fed’s preferred gauge of price rises. 

Both headline and core PPI were flat in June, showing that price pressures at factory gates are soft. Will it rise this time? The responses in markets are set to be similar to the CPI ones – albeit limited and short-lived. PPI data competes with another release (see below). 

4) US Continuing Claims may grab more attention on labor market fears

Thursday, 12:30. US Initial Jobless Claims have always been of interest to markets, but they have failed to reflect the recent weakening of the labor market, as seen in the Nonfarm Payrolls. 

On the other hand, Continuing Jobless Claims have been on the rise, marching steadily toward the two million mark. 

While the number of people claiming unemployment benefits for the first time has been low, those who stay on the dole has been rising.

As with other simultaneous publications, if both PPI and claims go in the same direction, the impact on markets would be greater, while figures offsetting each other would only provoke choppy, but listless price action. 

5) US Retail Sales will test the relentless American consumer

Friday, 12:30. Roughly two-thirds of the American economy are centered on consumption, making these publications of high importance, despite their volatility. 

Headline sales rose by a satisfactory 0.6% in June after a dive of 0.9% in May. Will the US report a drop in July? The see-saw may continue, but it is risky to bet against the relentless US shopper. Credit card companies remain calm about US spending, despite uncertainty.

6) Trump-Putin summit may not result in a ceasefire

Friday, late in the day. US President Donald Trump will meet his Russian counterpart Vladimir Putin in Alaska, in the first encounter on American soil since 1988. 

The main topic on the agenda is Russia’s war in Ukraine, which has been raging for nearly three and a half years. At the time of writing, Ukrainian President Volodymyr Zelenskyy will not travel to that remote region.

Zelenskyy and European leaders are urging Trump to include them in talks and not to agree to any territorial concessions to Russia without consent from Kyiv. It is unclear how things will develop, and if a ceasefire will be reached. Moscow has previously suggested an air-truce.

A ceasefire would boost the Euro and specifically aid construction companies that could benefit from Ukraine’s reconstruction. Shares of defense companies and Oil would fall – as Russian Crude would be able to flow more freely around the world. 

A partial ceasefire or a lack of meaningful achievements would do the opposite. 

Both Trump and Putin can be unpredictable, and reports – correct or not – about the potential agreement could float during the week. 

Final thoughts

Apart from the volatility around the Alaskan summit, reactions to inflation data could be hard to gauge. Markets may hope the Fed will see through tariff-induced inflation at some point, which could reverse any reactions to rising inflation. Trade with care.