• The calmer markets could refocus on economic releases

• Rich UK data calendar could question BoE’s recent rate cut

• Wednesday’s headline inflation to see a small acceleration

• Pound is trying to recover from the BoE-induced underperformance

Following a rather eventful period, market participants are feeling slightly calmer at the beginning of this week and hence have the chance to refocus on the real economy. Interestingly, Wednesday's US CPI report could support or defy fears of an imminent US recession with the market currently pricing in 100bps of Fed rate cuts by year-end.

In the UK, the recession fears are extremely low but, following the finely balanced rate cut by the BoE on August 1, the market is thirsty for more easing. Normally, the Bank of England's decisions depend on the incoming data, for example inflation prints. However, episodes like the recent stock markets' correction could force the Fed and the other key central banks to aggressively ease their stance without necessarily waiting for the economic data to justify such easing.

In the meantime, the countdown for the September meeting has already started with the market pricing in 43bps of rate cuts by the BoE until year-end. Governor Bailey has the majority in the council, as depicted at the recent meeting, but if the data does not progressively worsen and the market returns to normality, it could be very challenging for the doves to demand back-to-back rate cuts.

Therefore, this week’s economic releases are key for a check-up of the economy starting with the labour market data on Tuesday. The July claimant count change could surprise to the downside, but the economists are probably going to focus on the average earnings figures. The indicator that excludes bonuses is forecast to drop to 4.6%, the lowest level since July 2022.

The July inflation report will follow on Wednesday with the market expecting a small acceleration of the headline indicator to 2.3% from 2% in July with the core printing at 3.4% year-on-year change. The doves are probably satisfied with the recent performance of inflation, but their optimism could be somewhat dented if the recent uptrend in the producer price index, published also on Wednesday, picks up speed, thus increasing the possibility of stronger inflation down the line.

Thursday is equally jammed with the preliminary GDP print for the second quarter of 2024 expected to confirm expectations for strong growth with a non-negligible probability for a downside surprise due to the pre-election campaign denting both business confidence and consumer appetite. The latter will be the focus of Friday’s calendar as the July retail sales are seen improving considerably after a rather weaker set of figures in June being attributed to bad weather.

The pound suffered significantly after the unexpected rate cut by the BoE on August 1, losing around 2.5% against the euro before stabilizing at 0.8550 area, despite the much weaker economic sentiment in the eurozone.

The market appears convinced that the BoE will continue to ease its monetary policy and hence a weak set of data releases this week could, on the margin, result in further pound underperformance against the euro. However, a more aggressive market reaction is probably on the cards if Wednesday’s inflation report confirms the BoE hawks’ concerns for stronger price pressures going forward.