US retail sales in July rose by 0.5%, which met expectations and followed a revised increase of 0.9% in June. Import prices also went up by 0.4%, exceeding predictions amid tariff concerns. However, the University of Michigan consumer sentiment index fell short of expectations at 58.6, while inflation expectations grew, with the 1-year outlook at 4.9% and the 5-year at 3.9%. Expectations for a Federal Reserve rate cut in September have dropped to 84%, down from 100% earlier in the week. Fed officials are cautious due to mixed inflation data, especially from the service sector. US yields increased, with the 2-year yield at 3.752% and the 30-year yield at 4.921%.

Presidential Meeting In Alaska

Amid these economic updates, President Trump and President Putin are meeting in Alaska to discuss peace regarding Ukraine. US stocks ended the day mixed: the Dow rose by 34.86 points, while the S&P and NASDAQ fell. Crude oil prices decreased, reflecting hopes for a peaceful resolution between Russia and Ukraine. Key upcoming events include Fed Chair Powell’s speech at the Jackson Hole Symposium and New Zealand’s expected rate cut, along with more economic indicators to be released throughout the week. The Trump-Putin meeting carries significant risk, with crude oil prices already dropping due to optimism about a potential deal. Caution is necessary, as a breakdown in talks could lead to sharp declines in risk assets and a spike in energy prices. We recall that the VIX volatility index jumped from around 20 to over 35 in early 2022, making it wise to consider buying protection through index puts or oil calls.

Market Concerns About Inflation

With the high 0.9% Producer Price Index (PPI) and rising inflation expectations, the market has rightfully lowered the odds of a rate cut in September to 84%. All attention is now on Fed Chair Powell’s speech at Jackson Hole, which often significantly impacts the market. His hawkish tone in August 2022 led to a sharp market sell-off, so we should be prepared for potential volatility in both bond and stock markets. The increase in the 10-year yield to 4.319% indicates real concern about persistent inflation, especially given the rise in import prices. While July’s retail sales were strong, the disappointing consumer sentiment reading of 58.6 suggests this growth may not continue. This disparity calls for caution before making any long-term bullish bets on consumers. Create your live VT Markets account and start trading now.

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