According to the financial news app Zhitong Caijing, after a volatile week, investors will closely watch the US July Consumer Price Index (CPI) and retail sales reports to evaluate the Federal Reserve's interest rate cut prospects. In addition, consumer confidence, initial jobless claims, and manufacturing output data will also be in focus.

Due to the weak US July employment report triggering recession concerns and the intensified volatility caused by the closure of yen arbitrage trading positions, global stocks suffered a "Black Monday" last week. The S&P 500 plunged nearly 4% on the day, the largest single-day decline since 2022. As the initial jobless claims in the United States fell more than expected to ease panic, US stocks basically recovered from the week's decline by last Friday.

As for enterprises, investors will focus on Home Depot (HD.US) and Walmart (WMT.US) earnings this week to learn about consumer spending.

Aggressive betting on Fed rate cuts.

After the July employment report intensified people's concerns about the Federal Reserve maintaining interest rates at a too high level for too long, Wall Street's fierce debate about when the Federal Reserve would start cutting interest rates turned to how much the Federal Reserve should cut interest rates.

According to the FedWatch Tool on the Chicago Mercantile Exchange, as of last Friday afternoon, the market estimated a 50% chance that the Federal Reserve would cut interest rates by 50 basis points before the end of its September meeting, lower than 75% a week ago.

However, some economists still believe that pricing is too aggressive.

Jan Hatzius, chief economist at Goldman Sachs, said in a report on August 7th: "Rising unemployment and falling inflation further support the Fed's relaxation policy. We expect cumulative interest rate cuts of 200 basis points in the next 1-2 years."

"However, we believe that pricing in the short term is too aggressive, especially considering the possibility of a 50 basis point rate cut at the FOMC meeting on September 17-18."

Investors are re-adjusting their bets on interest rate cuts in 2024.

Inflation is once again in focus.

The US will release the July Consumer Price Index (CPI) on Wednesday. The market predicts that the overall CPI, including food and energy prices, will remain flat year-on-year at 3% in June. After a 0.1% decline in June, the inflation rate is expected to rise by 0.2% sequentially.

The market predicts that the core CPI, excluding food and energy prices, will rise 3.2% year on year, slowing slightly from the 3.3% increase in June. The core CPI is expected to rise by 0.2% sequentially, up from 0.1% in June.

Sarah House, senior economist at Wells Fargo & Co, said: "The July CPI report may further prove that inflation is slowing, even though it has not yet fully returned to the Fed's target level."

US July retail sales data, to be released on Thursday, will also be closely watched as investors seek clues as to whether the US economy (and important US consumer spending) is slowing down.

Economists expect a 0.3% monthly increase in July retail sales. Retail sales excluding gasoline and autos are expected to increase by 0.2%, slower than June's 0.8% increase.

Michael Gapen, chief economist at Bank of America, emphasized in a report last week that weak retail sales "may not excite the market because the market is still aware of downside risks." However, considering the significant increase in June retail sales, the weak data in July still "keeps the quarter's spending quite strong."

Gapen said: "Overall, if (retail sales and inflation) data is as we expected, we predict that the market's expectations for interest rate cuts this year will cool down and the possibility of a significant interest rate cut in September will be reduced."

The stock market needs "good" news.

According to the latest data from FactSet senior analyst John Butters, the estimated year-on-year profit growth of companies in the S&P 500 index component is 10.8%, the highest annual growth rate since the fourth quarter of 2021.

However, Citigroup's US stock strategy Scott Chronert pointed out that, "In the past two weeks, corporate earnings have taken a secondary position compared to price trends driven by macroeconomic factors."

On Thursday of last week, due to the significant drop in initial jobless claims easing concerns about the economy, the S&P 500 index rebounded by 2.3%, the largest single-day increase since 2022.

Nicholas Colas, co-founder of DataTrek, wrote in a report last Friday that the stock market rebounded on such a large scale after the release of reports such as initial jobless claims, "More because of the fragile state of the stock market and the tense emotions towards economic data."

This makes the data in the next week particularly noteworthy.

If the market reduces its bets on the magnitude of the Fed's interest rate cut and the yield on US bonds rises after the data is released in the next week, this may have a positive push on the stock market, as the market is turning towards an environment where bad news is bad news and good news is good news.

US stocks and bonds return to negative correlation.

"Good news will not only be good news, but I think good news will actually be very good, and bad news will be very bad," said Michael Kantrowitz, chief investment strategist at Piper Sandler last Friday.

"We will see a lot of good days and a lot of bad days, and market volatility will be much greater than what we have seen for most of this year."