Written Commentary
No let up in tensions in the Persian Gulf or Ukraine; Singapore Exports, Malaysia GDP and Fed Jefferson speech to digest ahead of US Import Prices, Industrial Production and Michigan Sentiment.
- USA: headline Import Prices to echo energy driven fall in CPI and PPI, Industrial Production set for small utilities boost, but highlight weak non-durables output, Michigan Sentiment seen clawing higher from May all-time low.
- Confluence of influences dampening equity market sentiment
EVENTS PREVIEW
Tensions in the Persian Gulf show no signs of dissipating, nor in the conflict between Ukraine and Russia as the week draws to a close with a modest run of data, a couple of central bank speakers and a smattering of corporate earnings.
There are Singapore Exports and Malaysian GDP to digest ahead of final and detailed Eurozone CPI, while the US looks to Import Prices, Industrial Production, Housing Starts and preliminary Michigan Confidence, and Brazil to monthly GDP (Economic Activity Index). The overnight speech by the US President putting allegations of ‘election fraud’ at the centre of the November mid-term elections sets a very divisive tone for that vote, but ultimately, as one former president observed, ‘it’s the economy, stupid’ that will decide the outcome.
The chipmaker driven sell-off in equities looks to be a case of a confluence of influences. Valuations are clearly challenging, but in contrast to H1 2026, the then seemingly eternal ‘buy the dip’ mentality appears to have dissipated, with tensions in the Middle East and accompanying inflation risks threatening higher interest rates, highly leveraged positioning (see attached chart on Margin Debt), and a typical seasonal lightening of positions and ironing out some portfolio imbalances during the northern hemisphere summer holidays likely combining to dampen bullish sentiment, even as chipmakers this week have smashed earnings expectations.
Next week’s schedule has an expected hawkish no change ECB rate decision, G7 flash PMIs and other surveys, UK, Japan and Canada CPI, UK and Australian labour data and little of significance from the US, while the US and worldwide run of Q2 earnings picks up pace.
** U.S.A. – June Import Prices, Industrial Production & July Michigan Sentiment **
Import Prices are set to echo CPI and PPI with a hefty energy price paced fall of -0.7% m/m, with the CPI and PPI details hinting that the ex-petroleum measure may undershoot the consensus of 0.4% m/m, though AI related goods pressures may be more evident. But with energy prices rebounding, this will merely reinforce the view that while a Fed rate hike is off the table in July, a rate hike later in the year is not, as was reiterated by Fed’s Jefferson overnight. Industrial Production is forecast to edge up to 0.2% m/m, boosted by utilities output thanks to the hot weather, with Manufacturing Output eking out a 0.1% m/m gain, and likely continuing divergence between robust durables output and weak non-durables production, the latter reflected in a drop of -0.5% m/m in Non-durables hours in the labour market report.
Data collection timing effects may be key for preliminary Michigan Sentiment that is seen clawing its way back up again to 51.0 from June’s 49.0 and an all-time low of 44.8 in May, with most responses likely collected before the latest rebound in energy prices.
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