Top 5 Things to Watch in Markets in the Week Ahead By

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By Noreen Burke — With the Federal Reserve entering its traditional blackout period ahead of its upcoming September policy meeting the main focus for U.S. investors in the week ahead will be on inflation figures for August. The timing of when central banks choose to scale back economic stimulus is a key driver of market sentiment amid concerns over rising inflation. The UK is also due to release what will be closely watched inflation data, along with updates on employment and retail sales. Appearances by European Central Bank officials may shed more light on last week’s decision to scale back bond purchases. Meanwhile, data from China is likely to underline that the pace of the recovery in the world’s number two economy is slowing. Here’s what you need to know to start your week.

1. U.S. inflation

Tuesday’s data on consumer price inflation will be the highlight of the economic calendar amid an ongoing debate over whether the current spike in inflation is likely to fade as the imbalance between supply and demand causing price increases in recent months eventually eases.

In July, price increases slowed but remained at a 13-year high on a yearly basis amid tentative signs inflation has peaked.

Market watchers will also be looking at Thursday’s figures on retail sales, which are expected to decline for a second straight month, as well reports on industrial production and data from the University of Michigan on consumer sentiment.

2. Stocks

Tuesday’s U.S. inflation numbers could help dictate market direction in the coming week amid concerns that persistent rising inflation could prompt the Fed to roll back emergency stimulus measures.

In recent days several Fed officials have indicated that the weak August U.S. jobs report on its own would not stop the central bank from beginning to pare its bond purchases later this year.

Despite the prospect of reduced stimulus packages, Mark Haefele, chief investment officer at UBS Global Wealth Management, said he expected central banks to keep interest rates low.

“This is positive for equity markets, particularly cyclical and value areas of the market. And while this complicates the search for yield, we continue to see opportunities,” he wrote in a note to clients.

3. UK data

Last week Bank of England governor Andrew Bailey warned that the economic rebound in the UK is slowing, so this week’s data on inflation, employment and retail sales will be closely watched, particularly ahead of the BoE’s upcoming policy meeting on Sept 23.

July data showed that inflation slowed to 2%, while retail sales fell 2.5% month-on-month.

Tuesday’s jobs data will also be in focus amid labor shortages and a record 8.8% increase in wage growth in June. The end of furlough schemes may push people into the jobs market, but skills shortages risk fueling price pressures driven by supply bottlenecks and commodity prices.

4. ECB speakers

In the euro zone, ECB Chief Economist Philip Lane and Bank of Finland Governor Olli Rehn are both due to make appearances, with investors hoping for more insights into last week’s decision to pare back emergency bond purchases over the coming quarter.

The move is a small first step towards unwinding the emergency stimulus the ECB deployed to bolster the euro zone economy during the coronavirus pandemic.

ECB President Christine Lagarde was eager to stress that the move wasn’t the start of tapering.

The move by the ECB to trim bond purchases is expected to be followed by the Fed later this year, despite the disappointing August U.S. jobs report.

5. China data

China is to release data on industrial production, retail sales and fixed asset investment on Wednesday, which will show the economic impact of a widespread Covid outbreak in August, which saw Beijing partially close the world’s third-busiest container port and impose fresh restrictions across some areas of the country.

While the latest outbreaks have been largely contained the Chinese economy is still facing headwinds.

While exports have remained strong, boosted by robust global demand domestic demand has faltered amid virus containment measures, supply bottlenecks, tighter measures to tame property prices and a campaign to reduce carbon emissions.

–Reuters contributed to this report