Week ahead: Inflation key, as Walmart leads the retail earnings theme

Monday

Tuesday

UK jobs report

UK jobs data kicks off the week with all eyes firmly focused on the latest wage data following a worrying 8.1% number announced for August. The somewhat disjointed nature of this report means traders should keep a close eye on the claimant count figure in particular given that it is the most recent, covering October. With unemployment on the rise, any significant increase in either claimants or unemployment could further signal that the Bank of England will leave rates unchanged from here on in.

US CPI

U.S. consumer prices come into focus on Tuesday, with traders expecting greater clarity over the monetary policy outlook given the data dependent nature of the Federal Reserve. Widespread forecasts of a decline from last month 0.4% monthly rise signal the potential for a drop in the annual rate as the similar October 2022 figure of 0.4% drops out. Should we see decline in the headline inflation rate that would represent a welcome shift back into disinflation after three months of increasing or flat CPI. Also watch out for the core inflation rate which has been steadily making inroads over the course of 2023. Further downside for these two notable inflation metrics would further is concerns of an additional rate hike from the Fed.

Home Depot earnings

Home Depot kick off the retail theme for the week, with this home improvement focused firm coming under pressure of late. Affordability concerns amid higher interest rates could drive down demand for construction and renovation work. Consumer spending habits do point towards a strong demand for those seeking to maintain their quality of living, but there are questions around the willingness to also spend money on home improvements. The second quarter earnings saw consumers cut back on big-ticket purchases, and that theme looks likely to continue in Q3.

Wednesday

UK inflation report

Inflation remains dominant through Wednesday, with the UK inflation rate forecast to grab the headlines with a bumper decline in October. The October 2022 figure of 2% drops out this time around, bringing an almost certain sharp decline to the annual figure after months of worrying stability around this 6.7% rate. Well the Bank of England will undoubtedly wants to hold off on any additional tightening due to the economic implications, a short decline in headline CPI would likely is pressure on the Bank of England for now.

US retail sales

Last month saw markets fearful in the wake of a surprisingly strong 0.7% month on month rise in retail sales expecting that this economic strength could bolster calls for an additional December rate hike. Things have moved on since then with markets now pricing a 9% chance that we will see that final move come to fruition. Nonetheless, this reading will be important with markets expecting a significant decline to both the monthly and annual metrics. Should that come to fruition, it would further weaken expectations for a December hike.

Thursday

Walmart earnings

Walmart represent the biggest name to report this week, with shareholders hoping their third quarter earnings continue the pattern of outperforming forecasts. In a week dominated by retail names, Walmart’s size means it acts as a key barometer for US consumption. Last quarter saw Walmart beat across both top and bottom-line growth, with food traffic growing 2.8% and online sales rising 2.3%. That move into digital sales will be key going forward, with traders keeping a close eye out for Q3 earnings from this growth segment of the business.  The ability of Walmart to deliver products at low cost should stand them in good stead in the face of rising prices, while it should be worth watching whether they can raise margins in the face of rising wage and transportation costs. International sales will be another key element, with the growth in online sales helping to drive underlying growth in this segment.