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Investing.com - U.S. consumer price and retail sales data will be some of the headline events of the trading week, with investors curious to see how inflation and consumer spending are evolving as uncertainty hovers over a prolonged war in the Middle East. Cisco Systems is due to highlight the earnings docket, after a recent slew of quarterly results from S&P 500 names have soothed some worries over inflation pressures and the artificial intelligence boom. The Reserve Bank of Australia will also deliver its latest interest rate announcement.
1. U.S. CPI
Attention is now turning to Wednesday, when a closely-watched reading of U.S. inflation will be released and, potentially, offer further insight into how the Fed could approach rate decisions in the months ahead.
The Labor Department’s consumer price index is seen cooling marginally to 3.4% from 3.5% in the twelve months to July. The headline gauge includes gasoline expenses, which have been elevated since the start of the Iran war in late February, fueling worries over a wave of energy-driven inflation pressures.
Stripping out energy and food costs, the so-called "core" CPI index is tipped to ease to 2.5% from 2.6%.
At those levels, inflation would remain well above the Fed’s target, analysts at Vital Knowledge said in a note. While the central bank could opt to raise rates to attempt to quell price gains, doing so could imperil the wider economy, especially a labor market that now seems to be more fragile than originally thought.
2. Retail sales
Separately this week, investors will have the chance to parse through retail sales data for July from the U.S. Census Bureau as well.
The figures could offer a fresh glimpse into the state of consumer spending activity, one of the biggest engines of the American economy, in the opening month of the third quarter.
Analysts are projecting a slowdown in retail sales growth to 0.1% from 0.2% previously. In June, the figure was restrained by a decline in gasoline prices, which partially offset an acceleration in online spending and motor vehicle purchases.
Consumer spending remained robust in the second quarter, although it was not enough to prevent total economic growth from easing during the April-June period.
3. Iran war developments
Still, recent retail sales data has suggested that the U.S. economy has been able to weather the impact of an energy shock brought on by the Iran war.
The conflict has shown few indications that it is nearing a negotiated conclusion, despite guarded hopes last week that a deal to reopen the Strait of Hormuz could be imminent. Oil prices have gyrated on developments out of the Middle East, yet remain well above pre-war levels, as traders attempt to gauge when Iran will unshackle the vital waterway.
Further denting optimism for a deal, Iran seems to be moving to increase leverage in negotiations, issuing a long list of demands over the weekend that it says must be fulfilled before it agrees to unblock the strait.
According to a report from the state news agency IRNA, the secretary of Iran’s Supreme National Security Council said that the U.S. would need to permanently halt the war, end a naval blockade, terminate all sanctions, unfreeze Iranian assets, pay war reparations, stop insults and threats and cease military action against Tehran’s allies.
4. Cisco Systems among ebbing earnings slate
On the earnings front, networking hardware provider Cisco Systems will be in the spotlight when it reports after the close of U.S. markets on Wednesday.
Cisco has been cashing in on and funneling money into artificial intelligence, responding to a surge in orders from megacap technology-sector players racing to build out AI infrastructure. The company said in May that it would spend more on silicon, optics, and security, following AI infrastructure orders of $5.3 billion so far during the fiscal year.
The firm also plans to cut almost 4,000 jobs as part of a broader restructuring effort, with CEO Chuck Robbins stressing a need for Cisco to have the "discipline to continuously shift investment toward the areas where demand and long-term value creation are strongest."
Other returns set to be unveiled this week include chip equipment group Applied Materials and AI cloud-computing firm CoreWeave.
5. Reserve Bank of Australia decision
Elsewhere, the Reserve Bank of Australia is slated to reveal its latest interest rate decision on Tuesday.
Markets are widely anticipating that the RBA will keep its cash rate unchanged at 4.35%, meaning that analysts will likely be on the lookout for any guidance about the path ahead for the central bank’s monetary policy.
Westpac expects the central bank to retain a "hawkish" posture while assessing incoming data, saying the softer second-quarter inflation figures could give policymakers confidence that price pressures are easing under existing settings.
Australia’s second-quarter CPI surprised on the downside, with headline inflation easing to 3.9% year-on-year and trimmed-mean inflation falling to 3.6%.
That was below the RBA’s previous forecasts and strengthened the case for an extended period of steady rates.
