Key events to watch in the week ahead: 14 – 18 August 2023

This week’s overview

The broader risk environment continues to tread in its cautious tone this week, as the recent rallies in Wall Street finally saw some unwinding, with previous overextended market breadth now at more normal levels. The CNN Fear & Greed Index has also pulled back from previous ‘extreme greed’ territory, overall living up to the historical seasonal patterns in the S&P 500, where the month of August tends to be more subdued in performance. With the earnings season taking more of a backseat, attention will shift back towards inflation and growth data to guide monetary policy outlook and provide any justification of a soft landing.

Heading into the new week, here are five key events to watch:

US 2Q earnings season: Home Depot, Target Corp, JD.com, Cisco Systems, Walmart

The US 2Q earnings season will continue to wind down ahead, but with notable earning releases out of Home Depot, Target Corp, JD.com, Cisco Systems and Walmart next week. Thus far, out of the 91% of S&P 500 companies which have released their results, 79% have delivered an earnings beat, outperforming the 10-year average rate of 73%.

With the results of the heavy hitters behind us now, market focus will lean back towards the inflation and growth outlook to drive the trend over coming weeks. While seasonal patterns have not been favourable for market performance in the month of August, it may still have to take a series of growth scares to overturn the prevailing upward trend in US indices.

15 August 2023 (Tuesday, 7.50am SGT): Japan’s preliminary second-quarter GDP growth rate

Japan’s economic data in the second quarter has seen areas of resilience, as the services sector continues to hold up while trade activities improved. With that, current expectations are for Japan’s annualised 2Q GDP to rise to 3.1%, up from the 2.7% in 1Q. Quarter-on-quarter, a 0.8% growth is the consensus, slightly higher than the 0.7% in 1Q.

That said, while economic resilience is expected to be the takeaway from the upcoming GDP data, the data is backward looking, which may then place more attention on recent data to gauge the country’s economic outlook. Fresh updates on Japan’s inflation will be the focus next week, which will determine the pace of normalisation from the Bank of Japan (BoJ) and the direct trade-off for growth conditions.

15 August 2023 (Tuesday, 9.30am SGT): Reserve Bank of Australia (RBA) meeting minutes

At its August meeting, the RBA kept its cash rate on hold at 4.10% for a second straight month for more wait-and-see to assess the impact of a cumulative 400 basis point (bp) of rate hikes. In the accompanying statement, the RBA displayed more comfort around the inflation outlook, noting that while inflation remains "still too high at 6 per cent", recent data is "consistent with inflation returning to the 2-3 per cent target range over the forecast horizon".

Nevertheless, the RBA kept its tightening bias in place for policy flexibility, guiding that "some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe". The Board meeting minutes would be expected to reiterate the sentiments outlined above. They will be closely scrutinised around what factors would prompt the RBA to act on its tightening bias and what factors might see the RBA extend its pause for a third consecutive month.

17 August 2023 (Thursday, 2.00am SGT): Federal Open Market Committee (FOMC) meeting minutes

Following the 25 basis-point (bp) rate hike from the Federal Reserve (Fed) at its last meeting, the upcoming meeting minutes will provide some insights into the level of unity among policymakers around that decision, and also on their future rate hike appetite. The minutes are also expected to reflect an improved level of confidence around growth conditions, with Fed Chair Jerome Powell’s previous comments that the central bank's staff no longer forecasts a US recession.

That said, given the Fed’s clear emphasis on its data-dependence policy stance, more attention may instead revolve around fresh updates on US job and inflation data after the Fed meeting, as the minutes are backward-looking. Thus far, Fed funds futures pricing has been firm for an extended rate pause from the Fed through the rest of the year, supported by softer-than-expected inflation data this week.

18 August 2023 (Friday, 7.30am SGT): Japan’s inflation rate

Japan’s policymakers have been treading cautiously towards policy normalisation, recently guiding for flexibility around their yield curve control policy but also ensuring to keep hawkish bets in check with unscheduled bond-purchase operation. Given that a sustained and stable 2% inflation rate is one of the considerations for policymakers, any persistent showing in inflation numbers next week may likely add to calls for a quicker pace of normalisation.

For now, current expectations are for Japan’s July core inflation to moderate to 3.1% year-on-year, down from the previous 3.3%. The focus will be on the core-core inflation (inflation excluding food and energy prices), which remains more than two-fold above the central bank’s target (4.2% in July). Any lack of progress on that front may challenge the ‘transitory inflation’ argument from the BoJ and set off some hawkish bets.