US inflation will take center stage as financial markets worry about recession

Macroeconomic data releases are set to take center stage on Wednesday, starting with Chinese trade figures and then UK economic growth, before US inflation is spotlighted later – while in the newspaper the he London business is an advertising company, a chain of cafes and a recruiter.

The US consumer price index, which is one day ahead of factory gate inflation figures, will heighten speculation about the Federal Reserve’s next interest rate decision.

“The market favors a 75 basis point rate hike from the Federal Reserve on July 27 and we agree given the tight labor market and inflation at more than four times the target rate. by 2%,” ING economists said.

“In fact, inflation is expected to exceed target again this coming week as prices for gasoline, food, housing and airfare continue to rise rapidly. Core inflation may slow slightly to 5.8% from 6%, but is also well above target.

As the market expects higher inflation, this leads to higher rate expectations, leading to lower bond yields around the world, the United States yield curve inversion again – setting off another flashing light on the global recession dashboard.

CPI inflation was 8.6% in May, the highest figure since 8.9% in December 1981, and is expected to rise to 8.8% in June.

US producer price inflation, which will be confirmed on Thursday, was 10.8%, only a fraction below March’s 21-year high of 11.5%.

Market analyst Fawad Razaqzada of City Index said: “Whether expectations are met or exceeded, this should keep the dollar in the spotlight, especially against currencies where the central bank is still relatively more dovish.

“EUR/USD could break parity and USD/JPY could climb towards 140.”

He added that while inflation data could soften in the coming months, “June could come too soon for the impact of the slight drop in agricultural prices to trickle down to the consumer. So, just like in May, there is a risk that inflation will rise above again. If so, it will likely trigger further gains for the dollar.”

Growth in the UK and Wetherspoons

Turning to the former country, the Office for National Statistics is expected to confirm expectations that Britain’s economy continued to contract in May, following a 0.3% drop in April – although this was mainly due to end of NHS- test and trace program.

“As for the May numbers, the outlook is not expected to improve significantly, although we see modest improvement,” analysts at CMC Markets said.

“Fuel prices are expected to rise further with daily reports of record highs for diesel as well as gasoline as it becomes more and more expensive to fill up. At some point this will lead to demand destruction, because consumers will prioritize their spending.”

Ahead of its half-year results on Wednesday, JD Wetherspoon PLC Inc (LSE:JDW) was called one of broker Liberum’s least popular stocks.

Analysts expect Spoons to show “weak post-Covid sales momentum, high labor intensity and tight margins”, making it vulnerable to the double pinch of inflation. (Read more here)

With so many companies, most obviously airlines, struggling with enough staff, a half-yearly update from recruiter PageGroup PLC (LSE:PAGE) may prove interesting, with industry counterpart Hays the next day.

In April, it reported a record end to its first quarter, with a record month as gross profit topped £100m for the first time and rose 43% for the quarter.

It delivered strong performance across all of its geographies, disciplines and brands, with gross margin growth of 36% at constant currencies in Asia-Pacific being the weakest and Americas growth of 57% the strongest.

Elsewhere, final results for Loungers, the operator of Cozy Club cafe bars, are expected to be strong, according to broker Peel Hunt, with record profitability and nearly all of its net debt repaid.

Like-for-like sales should have slowed due to the increase in the VAT rate and the continued increase in food price inflation.

However, the broker expects the growing scale and recent price increases to support the consensus forecast for sales of £235m and adjusted earnings of £20.2m.

Wednesday July 13

Finals: Ilika PLC, Loungers PLC, Renold PLC

Interims: API GetBusy, API JD Wetherspoon (LSE:JDW), API Tullow Oil

Business Updates:PageGroup API (LSE:PAGE)

AGM: Asiamet Resources Ltd, Braveheart Investment Group PLC (AIM:BRH), Esken Limited, LondonMetric PLC Property PLC, MyCelx Technologies, Steppe Cement (AIM:STCM)

Economic announcements: Trade Balance (UK), Gross Domestic Product (UK), Services Index (UK), Industrial Production (UK), Manufacturing Production (UK), MBA Mortgage Applications (States United States), Consumer Price Index (United States), Crude Oil Inventories (United States),