Rhetoric rather than economics could be the main driver of sentiment in the week ahead, as investors watch further developments amid a brewing trade war between the U.S. and its major trading partners.
Trade-war fears have been simmering for months, keeping market gains in check.
The coming week also marks the start of the second-quarter earnings season on Wall Street, which analysts have been hoping would take market focus away from trade and put it on strong corporate profits.
Global financial markets will focus on this week’s U.S. consumer price data, which should give clearer signs on the pace of inflation and fresh hints on the frequency of Federal Reserve rate hikes through the end of the year.
Elsewhere, market participants will also be looking ahead to monthly trade figures out of China to see if the recent trade dispute with the U.S. had any impact on exports and imports in June.
Meanwhile, on the central bank front, a monetary policy announcement from the Bank of Canada will be in the agenda, with most analysts expecting a 25-basis point hike, which would be the first increase since January.
Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.
1. ‘Trade War’ Developments In Focus
The United States and China slapped tit-for-tat duties on $34 billion worth of the other’s imports on Friday, with Beijing accusing Washington of triggering the “largest-scale trade war” as the world’s two biggest economies sharply escalated their conflict.
Neither side is showing any signs of backing down, fueling worries that world’s two largest economies are spiraling towards a trade war that could shake the global economy.
U.S. President Donald Trump said an additional $16 billion of Chinese products will be subject to tariffs in two weeks. He also floated the idea that the final tariff total could exceed $500 billion, an amount that roughly matches its total imports from China last year.
Chinese state media slammed Trump’s trade policies and likened his administration to a “gang of hoodlums.”
Washington and Beijing appeared increasingly headed toward open trade conflict after several rounds of negotiations failed to resolve U.S. complaints over Chinese industrial policies, lack of market access in China and a $375 billion U.S. trade deficit.
Meanwhile, Trump kicks off his visit to Europe at a summit of leaders of NATO countries in Brussels on Wednesday and Thursday where he is expected to hammer home his calls on other countries to spend more on defense. While not on the summit’s official agenda, European leaders will voice their trade concerns to Trump, diplomats said.
Trump is then due to visit Britain on Friday, where he will meet Prime Minister Theresa May, as well as Queen Elizabeth.
Trump has vowed to stick to his promises of protection for U.S. industries against what he says is unfair competition from China, the European Union and beyond, even if many analysts say his punitive tariffs are likely to backfire on the U.S. economy.
Market players are worried that threats of higher U.S. tariffs and retaliatory measures by others could derail a rare period of synchronized global growth.
2. U.S. Q2 Earnings Season Kicks Off
Wall Street’s second-quarter earnings season kicks off this week, with major U.S. banks JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) all reporting Friday.
Q2 earnings growth is tipped to be 20.7% according to Thomson Reuters data, moderating slightly from a gain of 26.6% the first-quarter, which was the highest in seven years, when results were boosted by tax-cut tailwinds.
However, the season is being clouded by trade tensions and their impact on corporate profits, with analysts likely to scrutinize outlook statements to see whether to adjust numbers for the rest of 2018.
Wall Street shook off the tariffs on Friday, which investors said had been well-anticipated and priced-in. The S&P 500 rose to a two-week high, partly buoyed by strong U.S. jobs growth. However, investors said that a significant escalation in tension would cause worries to set in.
3. U.S. Inflation Data
The Commerce Department will publish June inflation figures at 8:30AM ET Thursday.
Market analysts expect consumer prices to inch up 0.2%, after rising at a similar rate in May, while core inflation is forecast to tick higher by 0.2%, the same as its rise a month earlier.
On a yearly base, core CPI is projected to climb 2.3%, a tad faster than the 2.2%-gain recorded in the preceding month.
Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories.
Rising inflation would be a catalyst to push the Fed toward raising interest rates at a faster pace than currently expected.
Besides the inflation data, this week’s calendar also features reports on producer prices on Wednesday, as well as a preliminary reading on Michigan consumer sentiment on Friday.
Data released at the end of last week showed that the U.S. economy created more jobs than expected in June, but steady wage gains pointed to moderate inflation pressures that should keep the Fed on a path of gradual interest rate increases this year.
4. China Trade Figures
China is to release June trade figures on Friday morning.
The report is expected to show that the country’s trade surplus rose to $27.2 billion last month from $24.9 billion.
Exports are forecast to have climbed 10.2% from a year earlier, while imports are expected to rise 22.0%.
Prior to Friday’s trade data, the Asian nation will publish a report on foreign exchange reserves on Monday, followed by data on consumer and factory inflation figures on Tuesday.
China, the world’s largest exporter, has so far escaped any major blow to its foreign trade sector despite rising trade tensions with the U.S., which last week warned it would continue to pursue tariffs on Chinese imports.
5. Bank of Canada Rate Decision
The Bank of Canada’s latest interest rate decision is due at 10:00AM ET on Wednesday, with most experts expecting the central bank to raise its benchmark rate by 25 basis points to 1.5%.
If confirmed, it would be the fourth rate hike over the past year, as recent data has painted a robust picture of the Canadian economy.
The central bank’s governor, Stephen Poloz, said last week the next move would be decided by economic data.
Canada added 31,800 jobs in June, while the unemployment rate rose to 6.0% from 5.8% as more people sought work, Statistics Canada said on Friday.
The central bank has raised rates three times since July 2017, but took no action at its last three meetings, as uncertainty over the North American Free Trade Agreement (NAFTA) has restrained business investment.