U.S. equities are rising on Monday, rebounding from last week’s declines on Wall Street. Investors are strategically positioning themselves for pivotal economic indicators set to be released later this week, coupled with the culmination of the second quarter earnings results.

This week’s economic calendar is relatively subdued, with the spotlight falling squarely on the U.S. Consumer Price Index (CPI) for July, slated for release on Thursday, and the July Producer Price Index (PPI) following on Friday.

The forthcoming CPI release is poised to provide insight into the trajectory of price pressures and corroborate the market sentiment surrounding the Federal Reserve’s potential course of action with regard to its aggressive interest rate hiking campaign. Should the data reveal diminishing inflationary pressures, it could bolster expectations that the Fed is nearing the conclusion of its rate hike cycle.

However, economists have projected a potential deviation from recent trends, suggesting that last month marked an upswing in U.S. inflation growth for the first time since June 2022. Such an outcome would potentially complicate the narrative of easing price dynamics in the world’s largest economy.

Forecasts anticipate an annual acceleration of the Consumer Price Index for July to reach 3.3%, up from the prior month’s 3.0%. On a month-to-month basis, the reading is anticipated to remain unchanged at 0.2%.

Thursday’s CPI release will encompass the « core » index, which excludes volatile elements like food and energy. Projections indicate a year-on-year moderation to 4.7%, while the monthly metric is expected to retain its 0.2% status quo.

Federal Reserve officials, having previously underscored their data-driven approach to policy decisions, are poised to scrutinize these figures meticulously.

The pursuit of attaining the Fed’s 2% inflation target has remained crucial to the central bank’s year-long campaign of successive rate hikes. Data trends since last summer indicate that these tightening measures have effectively curbed inflationary pressures. Nonetheless, policymakers remain attuned to potential inflation resurgence, signalling readiness to implement further rate adjustments if the need arises.

Source: TradingView

Last week, the benchmark index declined 2.5%, marking the most substantial weekly percentage downturn since March. This retreat, prompted by investors capitalizing on accrued gains from five consecutive months of growth, underscores the index’s sensitivity to market dynamics.

Investor attention also remains on the trajectory of Treasury yields, which last week elicited market turbulence by rising substantially following Fitch’s downgrade of the U.S. credit rating from AAA to AA+.

From a technical perspective as long as the index holds above its 4,328 support and the Relative Strength Index (RSI) indicators remains above 40%, the current pull back is considered healthy and is treated as a correction within the larger secondary up trend. While price action could become choppy in the coming months, at this juncture in time the overall trend remains up.

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