Inflation and Consumption Data Could Overshadow Cooperate Earnings

Companies are starting to report their second quarter earnings and markets are looking for solid results. However, with signs of declining consumer prices and weakening demand, the outlook for future profits could start to dim. Equity markets have started to fade after staging an impressive four day rally last week and growing pessimism on the back of fundamentals could spark a flight to safety potentially benefitting the dollar and yen.

• U.K. Consumer Prices (JUN) – July 13 – 08:30 GMT
U.K. inflation is expected to remain above the government’s 3.0% threshold for a sixth straight month which will be a concern for policy makers. The BoE has forecasted that consumer prices will fall back to their 2.0% target level due to existing slack in the economy, but each month prices remain above the threshold their argument weakens. However, expectations are for a consecutive decline to 3.1% from 3.4% supporting their case and diminishing the outlook for a rate hike. However, if prices remain sticky then yield expectations could rise, especially since Governor King has stated that a change in interest rates would be the first step in removing stimulus.

• U.K. Jobless Claims Change (JUN) – July 14 – 08:30 GMT
The main question for the U.K. economy is whether it can continue to generate growth in the face of the austerity measures proposed by the new government. A strong labor market will ease concerns over future consumption once government spending dries up. Economists are forecasting that the number of unemployed fell by 20,000 in June marking the sixth straight monthly decline. Sterling had been receiving support as the budget cuts are expected to improve the stability of the county’s AAA sovereign credit rating, but signs that growth is already slowing could derail the Pound.

• U.S. Advance Retail Sales (JUN) – July 14– 12:30 GMT
The U.S. consumer continues to deal with a weak labor market and the dimming prospect for earnings has Americans closing their wallets again. Forecasts are for demand to have fallen for a consecutive month by 0.3% following seven straight gains. Declining energy costs could be the culprit for the weakness if gasoline receipts lead the decline. Conversely, having to spend less on travel expenses, the potential exists for a gain in broader spending. Regardless, an inline print may not have the market moving potential considering the size of the decline but if combined with weaker corporate earnings, a flight to safety could ensue.

• New Zealand Consumer Prices (2Q) – July 15 --22:45 GMT
The New Zealand consumer price report is a quarterly reading which gives it added importance since it is the first look we will get at inflation for the country since the March. Despite signs that the country is experiencing sustainable growth inflation is actually forecasted to decline to 1.9% from 2.0% from a year ago with prices growing 0.4% in the quarter, equaling the pace from the prior period. Slower price growth could dim the outlook for a RBNZ rate hike which markets are expecting at their July policy meeting. The central bank raised rates by 25 bps at their last meeting and is expected to do the same as they embark on a tightening policy. Slower inflation may lead to markets pricing out several rate hikes as policy makers could stop at two.

• U.S. Consumer Prices (JUN) -- July 16 – 12:30 GMT
Inflation concerns in the U.S. have been replaced by the prospect of deflation which could be much more detrimental to a recovery. Consumer prices are forecasted to have slowed to 1.2% from 2.0% on an annualized basis on lower energy costs, with core prices to remain unchanged at 0.9%. Inflation ex-food and energy is expected to have grown 0.1% on the month which should ease some concerns that prices are headed in the wrong direction. If consumers start to anticipate lower costs for goods, they may sit on the sidelines especially as the labor market continues to struggle, limiting the potential for future corporate profits, sparking a flight to safety and potentially dollar support.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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