Investing.com — Wall Street Outlook

Wall Street looks set to start the week slightly higher, with the focus on the latest inflation data. Investors are looking for confirmation that the Federal Reserve will start cutting interest rates in September. The quarterly earnings season is coming to an end, but the retail sector will be the main focus in the coming days.

1. July CPI Looms Large

The future path of U.S. interest rates continues to be investors’ main focus. The release of U.S. consumer price data on Wednesday will be the week’s key economic data number.

Federal Reserve Governor Michelle Bowman noted some further “welcome” progress on inflation in the last couple of months, softening her usual hawkish tone. However, she added that inflation remains “uncomfortably above” the central bank’s 2% goal.

The Fed kept the policy rate in the same 5.25%-5.50% range at the end of July, but signaled that a rate cut could come as soon as September if inflation continued to cool.

July CPI data is expected to show inflation edging closer to the Fed’s 2% target, with forecasts indicating annual core inflation falling to 3.2%, the lowest since April 2021.

Fed fund futures imply a 49% chance of a half-point rate cut in September, down from 100% last week.

2. Futures Edge Higher with Inflation in Focus

U.S. stock futures edged higher Monday, as investors remained cautious ahead of the key inflation data and significant earnings from the retail sector.

By 04:00 ET (08:00 GMT), the Dow futures contract was 40 points (0.1%) higher, S&P 500 futures climbed 11 points (0.2%), and Nasdaq 100 futures rose by 60 points (0.3%).

The main Wall Street indices ended last week with minor losses, reflecting some recovery after a difficult start to the week. Jobless claims data alleviated concerns about the labor market and now attention turns to the consumer price index.

Several Fed officials, including the Atlanta Fed President, Philadelphia Fed President, and Chicago Fed President, will share their insights, suggesting confidence that inflation is cooling enough to consider rate cuts.

3. Earnings Season Drawing to a Close

The quarterly earnings season is nearing its end, with most companies having reported their results. Notable retailers like Home Depot and Walmart are expected to share their financials soon.

Investors are keen to hear what retailers say regarding consumer spending, which is crucial for economic growth amid some signs of weakness.

Other significant earnings include Cisco Systems and Fox Corporation. In Europe, UBS reports earnings, along with several insurance firms. Major Chinese internet companies, including Tencent and Alibaba, are also set to report results this week.

4. UK Inflation Also in Spotlight

The U.K. has a busy economic data calendar this week, with investors seeking clues about the Bank of England’s potential rate cuts.

After cutting rates earlier this month, markets anticipate about a 33% chance of another quarter-point cut in September. Wage growth data is due Tuesday, followed by inflation figures, which will indicate lingering price pressures in the services sector.

Catherine Mann, from the Bank of England’s Monetary Policy Committee, noted that pricing pressures could persist for years due to a structural upward ratchet in wage setting and pricing processes.

5. Crude Continues to Climb

Crude prices rose for the fifth consecutive session, with concerns over the U.S. economy easing even as geopolitical tensions in the Middle East persist.

By 04:00 ET, U.S. crude futures (WTI) climbed 0.9% to $77.55 a barrel, and Brent rose 0.7% to $80.25. Both gained over 3% last week, marking the first positive week in five.

Fears of a wider conflict in the Middle East disrupting oil supplies contributed to a higher risk premium in oil prices. U.S. economic data suggesting recession fears may be unwarranted also supported the oil market.