Week's main events (July 13 – July 17)

This week promises to be eventful for financial markets, as investors navigate the balance between geopolitical instability in the Middle East and a steady stream of macroeconomic data. The key events will be an assessment of China’s economic health and the release of US inflation data, which could influence future decisions by the Federal Reserve under the leadership of Kevin Warsh. The focus will be on a major reform of the Fed: following the recent appointment of leaders for five task forces, Chairman Kevin Warsh may present the first details of his initiatives to overhaul the regulator’s operations. Given the markets’ close focus on inflation, the US Consumer Price Index (CPI) figures scheduled for release on Tuesday will be a key determinant of investor sentiment. Midweek, the focus will shift to Asia: China will release a series of key second-quarter data points, including GDP, the trade balance, industrial production, and the unemployment rate. These figures will provide insight into how effectively the Chinese economy is coping with domestic challenges and external pressures. In Canada, the central bank will hold a monetary policy meeting, where the interest rate is expected to remain at 2.25%. At the same time, investors will be monitoring retail sales data and the UK’s May GDP report, which together will provide a clearer picture of the pace of the slowdown or recovery in global economic activity.

Monday, July 13
Since Monday is devoid of high-impact economic releases, market participants are likely to focus on technical positioning and digesting the previous week’s key events. Without fresh macroeconomic catalysts to drive price discovery, volatility may contract, leading to a period of consolidation in major currency pairs and equity indices.

No important news is expected on Monday, so the trading day will be relatively quiet.

Tuesday, July 14
For Tuesday, the primary focus is the US Consumer Price Index (CPI), which serves as a definitive test for the Federal Reserve’s current hawkish bias. Markets anticipate headline annual inflation to reach approximately 3.9% for June, reflecting continued price pressures linked to energy costs. A print at or above this expectation would likely reinforce the “higher-for-longer” narrative for interest rates, providing a strong tailwind for the US dollar (USD) while pressuring equity indices like the S&P 500. Conversely, any unexpected cooling in the data could trigger a sharp USD sell-off as traders scramble to re-price the probability of future rate hikes. Following the CPI release, Fed Chair Kevin Warsh’s testimony before Congress will be a high-stakes event. As this is his first appearance before lawmakers since taking the helm, markets will parse his commentary for any signals about the Fed’s tolerance for current inflation levels versus the potential economic impact of its restrictive policy. His tone, whether maintaining a hawkish stance to combat stickier-than-expected inflation or acknowledging risks to growth, will dictate the momentum for the remainder of the trading week.