UK inflation and the FOMC minutes are the week’s main events. A jump in household energy bills is expected to lift UK CPI, although softer services inflation should temper the increase, say experts. The Fed minutes will revisit July’s decision to hold the fed funds rate steady and the hawkish dissent, but subsequent weakness in employment, inflation and retail sales has already shifted the debate.

Monday brings Japan’s first estimate of second-quarter GDP and China’s July activity figures. UK labour data follows on Tuesday, while Australia’s wage and employment reports will help shape expectations for another RBA move. Friday’s flash PMIs provide the first broad reading on August activity.

On the geopolitical front, the Middle East remains the principal external risk. Uncertainty over the Strait of Hormuz continues to affect energy prices, transport costs and business confidence. Trade tensions will also be a factor for North American markets this week. New 50% US duties affecting around 5% of Canadian exports not protected by USMCA exemptions are scheduled to take effect on Wednesday. However, negotiations are continuing ahead of the deadline. (LS – Continue Reading)

Japan’s economic growth unexpectedly slowed in the three months through June, a result that may complicate the Bank of Japan’s policy communications as it weighs the timing of its next rate increase.

Real gross domestic product grew 1.1% on an annualized basis in the second quarter as capital spending continued to slump in the face of uncertainties stemming from the Middle East conflict and private consumption flatlined under the weight of inflation, a Cabinet Office report indicated Monday. That was slower than a revised 1.9% pace in the previous quarter and fell short of economists’ forecast for 2% growth, while still marking a third consecutive expansion. (BBG – Continue Reading)

Central banks may be accidentally subsidizing government borrowing through their efforts to prevent a repeat of past market blowups, and policymakers are starting to worry that anticrisis lending facilities could even be interfering with their own monetary policy.

The source of the problem is the switch from central banks being the lender of last resort to, in 2008 and 2020, also being market makers of last resort, ensuring corporate—and government—debt markets keep functioning. During a crisis, support is often essential to prevent a downward spiral that destroys the financial system. (WSJ – Continue Reading)

President Donald Trump said Sunday that he has directed the Pentagon to scale down joint military exercises with South Korea, citing the country’s refusal to join the war in Iran and his “very good” relationship with North Korea’s Kim Jong Un.

Trump said the large, annual military drills sent a “signal that is totally inappropriate and hostile” to North Korea, a country with which the U.S. has no formal diplomatic ties, but which Trump says has been “unthreatening and respectful” as long as he’s been president.

“Based on the fact that it is too late to cancel, I have instructed Secretary of War, Pete Hegseth, to substantially reduce the Joint Military Exercises!” Trump wrote. (NBC – Continue Reading)