Title: Take Five: Inflation still the name of the game

August 8, 2022 03:45 AM ET

By: AnalysisWatch

The latest inflation figures from the U.S. will be in the markets' spotlight, especially as Federal Reserve policymakers are keen to dispel any misconceptions about their determination to fight decades of inflation with hefty rate hikes.

The impact of Nancy Pelosi's high-profile visit to Taiwan will be closely watched, as will data from China and the United Kingdom, while Ukraine is hoping for a reprieve from international investors.

The release of July inflation data in the United States on Wednesday will be a key touchstone for the summer rally in U.S. equity markets, which has pushed the S&P 500 to a multi-week high.

The benchmark index is up 14% since its mid-June low, driven in part by expectations that the Federal Reserve will be less restrictive than previously thought.

Fed officials have pushed back against the notion that they would be less aggressive under a so-called "dovish pivot."

Any signs that inflation has yet to peak after the Fed's 225 basis point rate hikes could provide a reality check to markets hoping for a soft landing for the economy.

Analysts polled by Reuters forecast annual inflation at 8.9% in July, up from 9.1% in June, the biggest increase since 1981.

U.S. House of Representatives Speaker Nancy Pelosi's visit to Taiwan, which China claims as its own territory, means tensions between the U.S. and China are on the rise again.

To be fair, the sell-off in global equities and the Taiwanese dollar, as well as the flight to safe havens like U.S. Treasuries, quickly subsided.

Still, markets have been very sensitive to political risk since Russia's invasion of Ukraine in February.

China on Monday announced new military exercises in the seas and airspace around Taiwan. Following Pelosi's visit, China held unprecedented live-fire military drills in areas around Taiwan. According to Taiwan, this violates the rules of the United Nations and is a violation of its territory.