Front and centre of our thoughts this week include

There is not a huge amount to get excited about in this holiday shortened week, with relatively few major economic indicators released to keep investors on their toes. The highlights however include inflation and housing data from the US, a manufacturing confidence survey from China and consumer borrowing figures in the UK.

Starting off in the US, we receive the Core PCE index for July, the Federal Reserve’s (Fed) preferred measure of inflation. Expectations are that the year on year growth in the inflation measure will rise above 2%, which would be the first time the inflation measure has been above the Fed’s 2% inflation target since April 2012. This would be a result which may provide Fed committee members with the validation to continue with their gradual course of raising interest rates.

One part of the US economy that is susceptible to rising interest rates and could see the Fed alter its interest rate hiking path is the housing market. The housing market is one of the most interest rate sensitive parts of the economy and recent housing data has been on the softer side, in particular home sales. Elevated house prices and rising mortgage rates as well as a lack of available homes for sale have all been cited as reasons for the slowdown. Nevertheless, the weakness in recent housing data means that the new home sales figures for July have added significance as investors try to establish whether the recent softness is just statistical noise or the start of a more meaningful downtrend. Further weakness could make Fed committee members more cautious about raising interest rates going forward.

As we have mentioned previously, the ongoing trade war between the US and China means that Chinese economic data comes increasingly under the spotlight. This week sees the release of the Chinese manufacturing PMI confidence survey for August, which will show how business optimism has held up in the first full month since trade tariffs were introduced. Whilst we expect tariffs to weigh on business optimism, the Chinese government have recently relaxed fiscal and monetary policy in an effort to support the economy and it will be interesting to see which has had the greater influence on business confidence. Needless to say, a weaker reading may add to the anxieties over the impact of trade tariffs on growth.

In the UK, the highlight of the week will be the release of the Bank of England mortgage approvals and consumer credit figures for July. The housing market in the UK continues to be divided, with London and parts of the South East witnessing falls in housing transactions and prices whilst the rest of the UK looks relatively buoyant. However, the broader trend is that the momentum in the housing market is continuing to slow as affordability and a lack of houses for sale slow activity. If this trend persists, then household’s perception of wealth and confidence and subsequently consumption, may start to come under pressure. With regards to consumer credit, June’s figures showed that the UK consumer’s appetite for debt showed no signs of abating, with unsecured lending rising 8.8% over the year. Brexit aside, a slowing housing market and households continued binge on credit card borrowing present the biggest risks to the outlook for the UK economy, especially given the fact that the savings ratio in the UK continues to fall.

In other political news, it will be interesting to see how the Canadian government react to the news that the US and Mexico have reached a preliminary bilateral trade agreement, which is set to replace the existing NAFTA arrangement. The deal places additional pressure on Canada, the third partner in the original NAFTA deal to reach a similar agreement with the US. The US Government has added pressure on Canada by stating that they are prepared to go ahead with the Mexican deal with or without Canada’s participation.