Market outlook for the week of August 19-23

Monday's calendar is very empty, with no major economic events scheduled. On Tuesday, Canada releases its inflation data, and on Wednesday the minutes of the FOMC meeting will be released, which could shed more light on the likelihood of a first rate cut in September.

On Thursday, there will be a series of preliminary manufacturing and services PMI data for Australia, Japan, the Eurozone, the UK and the US. In the US, we also get existing home sales figures and the Jackson Hole Symposium begins.

There are several important releases on Friday: retail sales q/q for New Zealand, national core CPI y/y for Japan, and both core retail sales and retail sales m/m for Canada. In the US, data on new home sales will be released.

On the second day of the Jackson Hole Symposium, Federal Reserve Chairman Jerome Powell will deliver a speech discussing the economic outlook. Bank of England Governor Andrew Bailey is also scheduled to speak at the event.

Various FOMC members are expected to deliver remarks throughout the week.

The consensus for this week's Canadian inflation data is that headline inflation will fall to 2.4%, with core inflation also expected to decline. The adjusted average consumer price index is expected to slow to 2.8%, while median inflation is expected to be 2.5%.

The latest inflation data from Canada shows progress and prompted the Bank of Canada's latest interest rate cut. This week's figures could provide important insights for possible monetary policy decisions at the September meeting.

Although inflation and hourly wage growth for permanent employees remained high, Wells Fargo said the overall labor market is weakening and economic activity is slowing, easing price pressures.

If this week's inflation data falls short of expectations and economic activity continues to slow, the BoC will likely decide on a further 25 basis point interest rate cut at its September meeting.

This week's Eurozone manufacturing and services PMI data may provide further clues to a possible ECB rate cut in September. The economy posted solid growth in the first half of the year, with GDP rising 0.3% quarter-on-quarter in both the first and second quarters. This was supported by easing inflation, employment growth and rising real incomes. However, sentiment surveys have weakened recently, particularly for manufacturing in Germany. For August, consensus is for the manufacturing PMI to rise slightly to 45.9 from 45.8, and the services PMI to fall to 51.7 from 51.9. A significant deviation from consensus could influence the ECB's policy decisions. Readings well below expectations argue for a rate cut in September.

The consensus for U.S. existing home sales is 3.92 million, up slightly from the previous 3.89 million. The housing market continues to struggle due to high mortgage rates and rising prices. Since June, existing home sales have declined for four consecutive months, approaching levels last seen in 2010. While a possible Fed rate cut in September could lower mortgage rates and attract buyers, strong price growth and falling incomes will likely limit resales.

Preliminary data from June suggest that a slight decline in mortgage rates sparked a modest rebound in activity in July. There were slight gains in home sales and mortgage applications, according to Wells Fargo analysts, and they expect existing home sales to rise 1.3% in July, to an annual pace of 3.94 million units.

The consensus for Japan's core national CPI year-on-year is for a rise to 2.7% from 2.6%. The BoJ will closely monitor this week's data to decide whether to implement another rate hike or delay it. One possible reason for the expected rise in inflation could be government energy subsidies, as the pace of price increases for food and services has slowed. Inflation in Japan remains above the 2% target.

The consensus for U.S. new home sales is for an increase to 628,000 from 617,000. However, momentum is fading for homebuilders. New home sales fell 0.6% in June, the second straight decline and leaving sales 7.4% below year-ago levels. A weaker labor market and expectations of lower mortgage rates in the future are dampening demand, while incentives for builders are losing their effectiveness, according to analysts at Wells Fargo. In June and July, 61% of builders offered incentives, the highest percentage since January.

The Jackson Hole Symposium is a major event that many Fed Chairs have used over time to deliver important speeches on monetary policy. While it doesn't happen every year, there's a good chance that Fed Chair Jerome Powell will use this opportunity to announce a major policy shift given the current economic environment: Inflation has fallen significantly, the labor market has softened, and the unemployment rate has risen.

Many analysts expect a rate cut to be imminent in September, which is likely to be hinted at in this speech. However, Powell is unlikely to comment on the magnitude of the adjustment, as another round of inflation and employment data is expected before the September FOMC meeting. While the market is already expecting a 25 basis point cut, a 50 basis point cut cannot be ruled out, depending on what the upcoming data will show.

I wish you a profitable trading week.