Today’s UK inflation report will probably show that the recent deceleration in pricing pressure has run its course and is now stabilising, if not inching higher. Meanwhile, the recent weakness in the Eurozone will come under new scrutiny with the update of economic sentiment numbers for Germany via ZEW. In the US, the June report on retail sales will be closely analysed, in part because it will drop new clues about the macro trend just ahead of Federal Reserve Bank chair Janet Yellen’s semi-annual monetary policy testimony to Congress today at 14:00 GMT.
UK: Consumer Price Index (08:30 GMT) Inflation in 2014 has been running below the Bank of England’s 2.0 percent target, giving policymakers a bit more freedom to let interest rates remain at historic lows. The 1.5 percent year-over-year increase in the consumer price index (CPI) through May is notable when you consider that the deceleration from 2.7 percent as recently as last September has been accompanied by a strong revival in several key macro trends, including a revival in employment and a strong rise in house prices. But we’re probably at the end of inflation’s deceleration. That’s not to say that the UK is about to experience a sharp rise in CPI’s annual pace, but there’s a reasonable case for expecting that last month’s 1.5 percent increase will mark the low point until the next recession, which is nowhere in sight.
The consensus forecast sees today’s inflation update for June running at a slightly faster pace: 1.6 percent. It’s likely that UK inflation will stay below 2 percent in the months to come, albeit at a slowly rising rate. As such, an incremental increase in CPI’s annual rate in today’s release will be another reminder, albeit a subtle one, that a new phase of policy tightening for Britain draws closer. 
Germany: ZEW Economic Sentiment (09:00 GMT) The debate about the Eurozone economy - is it in recession again? Did the last recession end? All this will be front and centre again today with the July update of ZEW’s monthly survey results for Germany (and its Eurozone equivalent, which will also be published at 9:00 GMT). According to this data set, the current reading on Europe’s largest economy has continued to improve this year while the near-term outlook has deteriorated. The divergence can’t run on much longer. Something has to give, as they say, and so either optimism or pessimism will soon dominate. Meantime, what should we make of the conflicting signals?
“The German economy is currently in a very good shape, but further increases are becoming more difficult,” ZEW’s president noted in last month’s report. “We had a strong first quarter in 2014 due to favourable weather conditions, but signs are that the second quarter will be weaker.”
The likelihood that Europe’s growth engine is slowing raises new complications for Europe because France appears to be caught in a new slump. Markit’s June updates on purchasing managers surveys for retail, services and manufacturing all show the French economy in various states of contraction. Yesterday’s update on Eurozone industrial production for May doesn’t look encouraging either. Output slumped a hefty 1.1 percent for the month, trimming the year-over-year growth to something approximating stagnation - 0.5 percent, the lowest since last October.
As noted in this column last month, the Centre for Economic Policy Research (CEPR) has been sceptical that the Eurozone's recession has ended. Such concerns seem to be on the rise. “One could make the case that the tentative recovery in the euro area has come to an abrupt halt,” Credit Suisse warned in a research note on Monday. Deciding if that’s true will take another round or two of hard-data releases, although today’s ZEW numbers will be closely read for clues on what to expect. 
US: Retail Sales (12:30 GMT) Consumer spending this year has posted a stronger run of growth compared with recent history. Although the monthly comparison softened in May to a 0.3 percent rise - the slowest since January - retail sales have posted four straight monthly increases. That’s the strongest four-month run since 2011.
The crowd’s looking for another month of growth in today’s June report. The consensus forecast sees a 0.6 percent increase in last month’s retail spending against May - double the rate of growth in May. That’s in line with my econometric modeling. One reason for an optimistic forecast is the ongoing strength in auto sales lately. We also have some advance intelligence via the weekly numbers for chain store sales, which posted a healthy increase in June. The bottom line: the case looks solid for expecting that June retail sales will rise for the fifth month in a row.
Good news on the retail front will likely put renewed pressure on Treasuries. Indeed, the subject of interest rates and the timing for the first hike in the policy rate will be topical today when Yellen testifies in Congress starting at 14:00 GMT. The dominant view at the moment is that the central bank won’t begin to raise its key rate until mid 2015 at the earliest. But that could change if today’s retail sales data delivers an upside surprise. In that case, today’s comments from Yellen may turn out to be considerably more influential than expected for boosting the fortunes of the bond bears.