Weekly Outlook, 8-12 August

Inflation or Stagflation?

After last week's weakness seen in the PMI and some other data and finally, with the NFP surprise in the US, a week ahead will be about inflation and the last guesses about recession. Central banks for their new decisions will focus now on CPI numbers. While inflation also increasing, again this question is back to investors' minds, should we wait for growing inflation or stagflation?

Nonfarm Productivity - Monday

While there are contradictory signs about recession getting more and more, at least we all agree on the economic slowdown. With 1.2 million newly created jobs in the second quarter, business value declined by 2.1%. And now, nonfarm productivity is estimated to decline at a 5.0% pace in Q2. While productivity growth has worsened compared to before the COVID-19 pandemic, many economists based on this data conclude that recession is already undeniable. These data would have a negative impact on the US stock markets.

EIA Short-Term Energy Outlook - Tuesday

The Short-Term Energy Outlook, known as "STEO" published monthly by US Energy Information Administration will provide depth market analysis of crude oil, petroleum products, and natural gas markets. For now, estimates about the demand and supply considering the possible recession are what energy market activists would like to learn. The market reaction depends on the report itself and its detailed numbers.

US inflation - Wednesday & Thursday

Inflation numbers in the United States will be the main focus of the week, especially with surprising employment data, now market participants will watch it more closely. If inflation decrease as it showed in previous weeks, then we should not expect an aggressive reaction from FED, and vice-versa. With easing energy prices, CPI is expected to decline to 8.7% from 9.1% in the previous month. However, Core CPI numbers also should decrease to say that there is "compelling evidence” that inflation is moving back toward the Fed's target. Lower inflation will put more pressure on USD values, and increasing signs will increase the US dollar demand.

OPEC Monthly Report - Thursday

After Tuesday's EIA report, and weekly oil inventory numbers, this week we have to watch the OPEC Monthly Oil Market Report. In the OPEC report, the organization's outlook for crude oil market developments for the coming year, a detailed analysis of key developments impacting the oil market, and its estimates about overall production and supply will be in the spotlight.

UK GDP - Friday

Last week BoE raised the interest rates by 50 bps and increased the inflation estimates to 13.3% from the previous 11%. With such huge inflation, nominal GDP may not fall that much in the second quarter, but real GDP is supposed to confirm the technical recession in the fifth biggest world economy. At the moment and according to the latest analysis, full-year 2022 GDP is expected to rise 3.5%, but for 2023, we expect the economy to contract very slightly, by 0.1%. Estimated numbers should have a negative impact on Sterling.