World markets are in full summer mode, even as tensions flare in the Gulf and there is no shortage of risk events for investors, including a health check on the mighty U.S. consumer and enough focus on inflation to bring gold back into the spotlight.
Here's all you need to know about the coming week in financial markets by Rocky Swift in Tokyo, Laura Matthews in New York and Amanda Cooper, Sophie Kiderlin and Karin Strohecker in London.
1/ FOOD INFLATION FEARS
The impact is likely to be felt most acutely across Asia and Latin America, where households spend a larger share of their income on food and policymakers remain wary of any renewed price pressures. Economies such as India have already felt it.
The United Nations Food and Agriculture Organization has warned the world is verging on another wave of food inflation. JPMorgan has estimated a strong El Niño on its own and at its peak could raise global food inflation by about 0.7%.
Markets will be watching closely to see if this is temporary or a new inflation headache, forcing central banks to rethink monetary policy.
2/ CONSUMER CHECKUP
A wave of retail earnings will provide a timely check on the health of the U.S. consumer, showing whether spending remains resilient across income groups and whether the Iran conflict is beginning to weigh on household budgets.
With a resolution stalled, Walmart, Home Depot, Target, Lowe’s and Deere could offer the clearest read yet on how higher energy prices and geopolitical uncertainty are affecting demand. Gas is more than $4 a gallon, but inflation elsewhere shows signs of cooling.
Walmart and Target may reveal whether households are shifting spending towards essentials as fuel and transportation costs remain high. Home Depot and Lowe’s could show whether inflation and borrowing costs are curbing home-improvement spending, while Deere may signal how rising energy and input costs are affecting farmers.
Whether executives view these pressures as manageable headwinds or a growing threat to margins and demand will be the real focus for investors.
3/ TAKE A HIKE
The latest print of Japanese gross domestic product will offer a glimpse into how Asia's second-biggest economy is weathering the Iran war and its tolerance for a central bank interest rate hike.
The prolonged Middle East crisis has weighed heavily on Japan, delivering a double whammy of higher costs for imported oil and depreciation in its currency.
With mounting pressures to contain inflation and protect the yen, markets are growing more certain that the Bank of Japan will lift its policy rate by 25 basis points to 1.25% next month, following its June hike to 1%.
4/ GOLD STAR
A rising dollar and a surge in inflation expectations and bond yields were always going to knock gold. With the price sitting near record highs at the start of the conflict, the opportunity to cash in on a parabolic rally was too good to miss. In three months, gold fell 25% and its reputation as a safe haven lay in tatters.
However, from late June's six-month low around $3,965, it has risen nearly 10%. Inflation has not rampaged out of control and markets are assuming the Federal Reserve may not raise rates. Investors are starting to buy gold. After four months of outflows, gold ETFs are starting to draw in capital . More importantly, central banks, which slowed buying sharply in the first quarter, just bought more gold between April and June than in any second quarter on record, with 289 metric tons, according to the World Gold Council.
5/ SUNSHINE AND SOCCER
After the latest reading of UK GDP, which beat expectations in June thanks to hot weather, World Cup football and stronger business investment, unemployment and inflation figures are up next.
Both are of course important, but the latter especially will be closely watched. Inflation eased to 2.6% in June, helped by a fall in energy prices after the U.S.-Iran ceasefire. But the pause in fighting didn't last and energy prices accelerated again, which points to a potentially higher July print.
Adding to Iran-fuelled inflation concerns are growing worries about higher food prices. Extreme heat in the UK and Europe is impacting food production, and several UK supermarket groups have already warned of a food price shock.
Considering the cost of living is a priority for new Prime Minister Andy Burnham, price pressures are bound to be a concern as he works out his spending and policy plans.
