With summer drawing to a close, trade-related headlines could be the main driver of sentiment in the week ahead, as investors watch further developments in the ongoing trade spat between the U.S. and its major trading
partners.
The ongoing trade tensions have left investors fearful than any escalation could results in a global economic slowdown or a hit to corporate profits.
Meanwhile, on the data front, a report on U.S. personal income and spending, which includes personal consumption expenditures (PCE) inflation figures, the Fed's preferred metric for inflation, will capture the market's attention.
This week's calendar also features the second estimate of U.S. GDP growth for the second quarter.
Across the Atlantic, traders will focus on flash euro zone inflation figures, which are likely to lend support to the European Centrals Bank's decision not to rush stimulus withdrawal.
Elsewhere, in Asia, market participants will pay attention to monthly data on China's manufacturing sector, which will be watched for any signs of damage from the ongoing trade conflict with the U.S.
Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.
1. NAFTA Trade Talks
U.S. and Mexican trade officials are believed to be close to an agreement which would pave the way to bring Canada back into negotiations on a revised North American Free Trade Agreement (NAFTA) as the incoming Mexican trade negotiator signaled possible solutions to NAFTA energy rules and a contentious U.S. "sunset clause" demand.
President Donald Trump tweeted on Saturday morning that the United States' "relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together....A big Trade Agreement with Mexico could be happening soon!"
Our relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together....A big Trade Agreement with Mexico could be happening soon!— Donald J. Trump (@realDonaldTrump) August 25, 2018
The U.S. and Mexico have been holding bilateral talks aimed at resolving their differences before bringing Canada back to the talks.
All three governments are hoping to reach a new NAFTA agreement in principle by the end of August.
Meanwhile, Washington is pressing the European Union to speed up trade negotiations launched after last month's meeting between President Trump and EU Commission President Jean-Claude Juncker, two German and a U.S. official said on Saturday.
Emily Haber, Germany's ambassador to the United States, told reporters a working group formed after the Trump-Juncker meeting had convened for the first time this week, and U.S. officials were pressing "for very rapid results".
However, market focus is largely attuned to the next potential steps in the tit-for-tat trade dispute between the U.S. and China after two days of talks in Washington led by mid-level officials last week did little to resolve a worsening trade spat between the world's two biggest economies.
U.S.-Sino trade-war fears have been simmering for months, with investors jittery over the prospects of further escalation in tensions between the world's two largest economies having an impact on economic growth.
2. U.S. PCE Inflation Data
The Commerce Department will publish data personal income and consumer spending for July, which include the personal consumption expenditures (PCE) inflation data, at 8:30AM ET Thursday.
The consensus forecast is that the report will show that the core PCE price index inched up 0.2% last month, after rising 0.1% in June.
On an annualized basis, core PCE prices are expected to rise 2.0%, compared to a 1.9%-increase in the preceding month.
The Fed uses core PCE as a tool to help determine whether to raise or lower interest rates, with the aim of keeping inflation at a rate of 2% or below.
3. U.S. Q2 GDP - Second Estimate
The U.S. Commerce Department is to release revised figures on second-quarter economic growth at 8:30AM ET Wednesday.
The data is expected to show that the economy grew at a 4.0% annual rate in the April-June quarter, a slight downward revision from a preliminary estimate of 4.1%.
That would still be the highest reading since the third quarter of 2014.
The current U.S. economic expansion, already the second longest on record, has been given extra fuel in the form of major tax cuts, which will help keep the chances of a major slowdown quite low for the rest of this year.
Besides the GDP report, this week's rather light economic calendar also features the latest CB consumer confidence survey as well as the August reading on manufacturing activity in the Midwest.
The data is unlikely to alter the outlook for monetary policy after Fed Chairman Jerome Powell reiterated last week that the case for continued gradual rate hikes remains strong despite President Donald Trump's criticism of higher borrowing costs.
Traders of interest rate futures kept their bets on rate hikes in both September and December in the wake of Powell's latest comments.
4. Euro Zone Flash Inflation
The euro zone will publish flash inflation figures for August at 0900GMT (5:00AM ET) Friday.
The consensus forecast is that the report will show consumer prices rose 2.1%, unchanged from the preceding month.
The core figure, without volatile energy and food prices, is also seen holding steady at 1.1%.
The European Central Bank targets inflation of close to but just below 2% for the euro zone as a whole.
Germany, France, Italy and Spain will produce their own CPI reports throughout the week.
The ECB aims to end its bond purchasing program by the end of the year and has signaled a possible interest rate hike next year.
However, worries that growth in the region appears to have peaked, combined with concerns over a trade dispute with the U.S., have brought the ECB pessimists out of the woodwork in recent weeks.
5. Chinese Manufacturing PMI
The China Federation of Logistics and Purchasing is to release data on August manufacturing sector activity at 0100GMT on Friday.
The survey is expected to tick down to 51.0 from 51.2.
The purchasing managers' index (PMI) is seen as a good indicator of economic conditions and it is even preferred by some analysts to gross domestic product, which might be affected by poor seasonal adjustment and is prone to revisions.
Anything above 50.0 signals expansion, while readings below 50.0 indicate industry contraction.
Recent data has started to show that the world’s second largest economy may be losing steam, raising concerns about the potential fallout from a full-blown U.S.-China trade war.
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