All eyes on Fed decision
All eyes this week will be on the FOMC announcement on Wednesday. Despite the upside surprise to June’s US CPI report, the slowdown in US economic growth and housing market, along with recent commentary from Fed officials have dampened expectations for a super hike (100bps). Indeed, our colleagues in Daiwa America expect the Fed’s FFR target range to be increased by 75bps for the second successive meeting to 2.25-2.50%, but with possible hints from Powell’s post-meeting press conference that future hikes will be of smaller magnitude (circa 25-50bps).

US Q2 GDP and monthly spending figures also in focus
The first estimate of US GDP (Thursday) is likely to be soft, with subdued consumer spending and declining business and construction investment. Overall, our colleagues in America expect only very modest growth of 0.2%Q/Q annualised (a touch below the Bloomberg survey consensus of 0.5%Q/Q ann.) following the decline of 1.6%Q/Q ann. in Q1. The latest Conference Board consumer confidence survey (tomorrow) will provide an update on household sentiment at the start of Q3, while monthly personal income and spending figures (Friday) will offer a more timely assessment of consumption at the end of Q2 – while spending is forecast to rise a solid 0.8%M/M in June, this will almost entirely reflect higher prices.

Euro area flash estimates of July CPI inflation
A busy week for euro area top-tier releases concludes with the flash estimates of July CPI inflation (Friday). We forecast that the headline HICP rate will remain close to June’s 30-year high of 8.6%Y/Y, perhaps edging down just 0.1ppt to 8.5%Y/Y due principally to lower petrol prices. But the risks to that forecasts are skewed to the upside. And we expect the core rate to rise 0.2ppt to 4.5%Y/Y as cost pressures continue to be passed by firms to consumers. The flash German CPI estimates (Thursday) will give further guidance.

Q2 GDP estimates from euro area and member states
The first estimates of Q2 GDP data for the euro area and the four largest member states (also Friday) are likely to report little growth in the region. We forecast that euro area GDP was unchanged on the quarter as household consumption was constrained by high inflation and external demand softened. However, risks to that forecast are likely skewed to the upside, as spending on tourism and recreational services rebounded as pandemic restrictions eased. In Germany, we expect GDP to contract as the manufacturing sector continued to struggle with supply constraints. But we expect modest growth in France, Italy and Spain thanks to the pickup in consumer-facing services. Following Friday’s weak flash PMIs, July sentiment surveys will also be watched, including the Commission’s business and consumer indicators (Wednesday) as well as the German ifo business survey (today).

Japanese IP, retail sales, labour market and Tokyo CPI figures due
It will be a busy end to the week for Japanese top-tier releases too. Following the slump in industrial production in May (7½%M/M), Friday’s IP report will be watched closely for a bounce back in output as supply constraints eased somewhat in light of the lifting of Covid restrictions in China. But retail sales numbers are forecast to have remained subdued, despite a boost from price effects. Today’s department store sales saw the pace of annual growth slow sharply from May of 57.8%Y/Y to 13.8%Y/Y in June despite the recent boost to prices and low base a year ago (-1.6%Y/Y). And having fallen to a seventeen-month low in June the latest consumer confidence survey (Friday) looks set to signal a further deterioration in sentiment in July. Meanwhile, Tokyo CPI figures for July will further illustrate the upwards trend in prices, with the headline CPI rate forecast to rise 0.1ppt to 2.4%Y/Y, while the core rate (excluding fresh foods and energy) is expected to have risen above 1%Y/Y for the first time since March 2015 (when inflation as impacted by the consumption tax hike).

UK sentiment surveys due in the week ahead
A quieter week for UK economic releases kicks off with a couple of sentiment surveys, including the CBI's industrial trends report for July due today, followed by its distributive trades survey (tomorrow). Like Friday’s preliminary manufacturing PMIs the industrial trends survey is expected to suggest some loss of recovery momentum in the sector. The retail trade survey, meanwhile, is also likely to indicate that conditions remain difficult for retailers, as high inflation squeezes household budgets. Indeed, Wednesday's BRC shop price index for July is likely to rise to a new series high. Separately, tonight will bring the first of the head-to-head Tory leadership televised debates between former Chancellor Rishi Sunak and Foreign Secretary Liz Truss.