Global markets enter the week on edge, with investors laser-focused on the upcoming US consumer price index, a release that could either deepen stagflation fears or offer a glimmer of relief. Recent US labor market data has already shown cracks, with jobless claims reaching their highest level since 2021, while continuing claims have surged toward the two-million mark. Should July’s CPI reading accelerate, the Federal Reserve’s tone will be critical; a renewed emphasis on price stability over growth could pressure gold prices lower, while a softer inflation print may bolster bullion on expectations of falling Treasury yields. Master the markets with MJFXM – your gateway to expert trading courses and financial success.
Market participants will quickly pivot from inflation to fresh reads on retail sales and consumer sentiment. Economists expect spending growth to slow modestly in July, while sentiment may improve slightly from recent lows. The US Dollar Index holds firm above 98, its recovery capping gold’s attempt to breach the $3,400 mark. Treasury yields have eased slightly, and traders are pricing in an 84% chance of a quarter-point Fed rate cut in September.
Trade tensions remain an undercurrent. The year’s US-China tariff battle has seen multiple escalations and temporary truces, with President Donald Trump most recently extending the current pause for another 90 days. Over the past months, both sides have imposed sweeping levies — peaking at over 100% — before scaling them back in rounds of negotiations, while also tightening export controls on critical minerals, technology components, and agricultural goods. The next deadline looms, with markets wary of any sudden policy shifts.
Meanwhile, the Japanese yen trades quietly as the Bank of Japan maintains a cautious stance on rate hikes, mindful of potential economic damage from US tariffs. Policymakers have left the door open for further normalization but remain hesitant amid fragile domestic conditions. Asian equities and US futures began the week with slight gains, but geopolitical risks linger as President Trump prepares to meet Russian President Vladimir Putin in Alaska to discuss Ukraine, adding another layer of uncertainty for global investors.
Currency markets reflect growing conviction that the Fed will cut rates at least once more this year. Fed Governor Michelle Bowman’s dovish remarks over the weekend, highlighting labor market weakness over inflation concerns, reinforced that view. With no major US economic releases on Monday, traders are positioning cautiously ahead of the CPI report, while keeping an eye on Japan’s GDP data and the US Producer Price Index later in the week. Against this backdrop, markets are primed for volatility, with sentiment balancing precariously between optimism and fear.