From an economic perspective, US inflation will be the key test for markets this week. Core CPI is expected to moderate to 2.5% YoY, its lowest level since Q1 2021, and following the weakness in payrolls, a benign print would reinforce expectations that the Fed can remain on hold. Conversely, an upside surprise would challenge the recent rally in equities, put renewed upward pressure on yields and reviving expectations of a September hike, although further Fed tightening is not our base case given signs of a cooling labour market. Producer Price Inflation will provide a further read on underlying US price pressures on Thursday, while UK data is expected to show the economy expanded by a solid 0.4% in Q2. Friday should confirm that US retail sales softened in July as higher gas prices weighed on auto demand, albeit Michigan sentiment data for August should indicate the consumer mood improved as oil prices fell.

Earnings season is entering its final stages, but several potentially market-moving releases still lie ahead. CoreWeave and Applied Materials should provide further insight into AI data centre demand and semiconductor equipment spending, while also helping to determine whether the recent rally in tech can maintain momentum. Closer to home, I-RES will update investors on rental growth and margins, occupancy trends and the groups asset recycling program, while Aviva’s results should offer additional evidence of operating momentum, capital generation and progress on the Direct Line integration. Overall, while we remain constructive on risk assets, elevated valuations in parts of the market mean this week’s data will need to validate expectations for cooling inflation, resilient growth and strong AI-related demand if markets are to move higher.