Key events to watch in the week ahead: 7 – 11 August 2023

This week’s overview

The S&P 500 has concluded the month of July with its fifth straight month of gains, underpinned by a confluence of strong earnings momentum, surprise US economic resilience and promising progress on its inflation front. But given that the earnings season should wind down over the coming weeks, while the next Federal Reserve (Fed) meeting stands in late-September, markets may have to actively seek for other bullish catalysts to continue its rally.

Seasonal patterns in August suggest that market performance tends to be more subdued historically, but while there are growing calls for some near-term cooling ahead, it could still be difficult to overturn the prevailing upward trend without a series of growth scares.

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

US 2Q earnings season: Palantir Technologies, Roblox Corp, Walt Disney

The US earnings season will see some winding down in the weeks ahead, but with some notable ones next week including Palantir Technologies, Roblox Corp and Walt Disney. Given the beaten-down expectations heading into this season, earnings momentum has been robust. 73% of S&P 500 companies have released their results, with 80% delivering an earnings beat, way higher than the 10-year historical average of 73%.

9 August 2023 (Wednesday, 9.30am SGT): China’s inflation rate

The previous inflation reading out of China has seen consumer prices flirting with deflationary territory, coming in flat at 0% year-on-year (YoY), while producer prices contract even further by 5.4% from a year ago. This month, the market is looking for a Consumer Price Index (CPI) to fall to -0.5% YoY as the Chinese reopening continues to stall and consumers remain cautious. This will drive the economy into deflation for the first time since February 2021.

Another soft number will likely spark calls for more stimulus to prevent a Japanese-type deflationary spiral and given that the People’s Bank Of China Governor Yi Gang previously downplayed deflation risks and highlighted "ample policy room" to support economic growth. For now, China’s recent new measures to stimulate spending were still seen as more conservative by stopping short of direct stimulus.

10 August 2023 (Thursday, 8.30pm SGT): US consumer price index (CPI)

Thus far, the US inflation trend has been making significant progress, which are broadly perceived to provide room for the Fed to shift towards a rate pause over the coming months. Current expectations are for the moderating inflation trend to continue, with the core inflation expected to come in at 4.7% year-on-year, a slight tick lower than the previous 4.8%. That said, headline inflation rate is expected to edge higher to 3.2% YoY due to a recovery in oil prices lately.

Any upside surprise will likely push back against rate-pause bets. While inflation has peaked, it is still well above the Fed’s target and the central bank may still lean towards delivering one more hike if inflation progress is not seen.

11 August 2023 (Friday, 2pm SGT): UK preliminary 2Q & monthly gross domestic product (GDP)

In the first three months of the year, the UK GDP grew by just 0.2% and while the economy has managed to steer clear of a recession then, growth remains spluttering over the past few months. Further trade-off for growth conditions from tighter monetary policies will likely show up over the coming months as well.

This comes on the back of cumulative 75 basis-point (bp) worth of tightening delivered by the Bank of England (BoE) in the second quarter, with little signs that the rate upcycle is coming to an end anytime soon. Rate expectations are still pricing for two more 25 bp hikes from the central bank by the end of this year.

Recent monthly GDP reading for May has fallen back into negative territory (-0.4%) for the first time in 2023 and while the drag is partly attributed to an extra national holiday from King Charles III’s coronation, further clues will be sought from the upcoming GDP reading to give a clearer indication of how long the stagnating growth outlook will last.