Top 5 things to watch in markets in the week ahead

Investing.com -- Investors will be looking at key inflation data on Wednesday for fresh clues on the potential size of an expected September rate cut by the Federal Reserve. Markets look likely to remain volatile, while retail earnings will be watched for clues on the strength of consumer spending. Here's your look at what's happening in markets for the week ahead.

1. CPI data

July CPI data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target.

A reading that shows only modest cooling could allay fears that the Fed has sent the economy into a tailspin by leaving rates elevated for too long. But a weak report could bolster recession worries, potentially sparking fresh market volatility.

The economic calendar also includes retail sales numbers for July as well as the weekly report on initial jobless claims.

Investors will also get the chance to hear from several Fed officials including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker and Chicago Fed President Austan Goolsbee.

Comments from a trio of Fed policymakers indicated on Thursday that they were more confident that inflation is cooling enough to cut rates.

2. Volatility risk

Investors seem likely to remain on edge in the coming week after last Monday’s stock market dive triggered by a combination of U.S. recession fears and the unwinding of a global yen-funded carry trade.

A bigger-than-expected drop in jobless claims on Thursday indicated that fears over the health of the labor market were overblown, helping markets recover most of their losses by Friday’s close.

The focus in the week ahead will be on whether the pricing in of long-awaited Fed rate cuts is justified by upcoming economic data and how much more of an unwinding of global carry trades is left.

Concerns about the conflict in the Middle East widening and the upcoming U.S. election also mean volatility is unlikely to disappear soon.

3. Earnings

Earnings season is in the final stages with the majority of companies having already reported their quarterly financial results.

But there are still a few notable names due to report in the coming week including retailers Home Depot (NYSE:HD) and Walmart (NYSE:WMT).

Investors will be on the lookout for what retailers have to say about the resilience of consumer spending, a major driver of growth in the economy, particularly given some recent signs of weakness in economic data.

Other big names on the earnings docket are Cisco Systems (NASDAQ:CSCO) and Fox Corporation (NASDAQ:FOX).

4. Oil prices

Oil prices notched gains last week as comments from Fed officials that they could cut rates as soon as September eased demand concerns, while fears of a broadening Middle East conflict continue to raise supply risks.

Brent gained more than 3.5% in the week, while U.S. crude futures rose more than 4%.

Fears over the prospect of a recession have calmed, bolstering the demand outlook.

At the same time, geopolitical tensions in the Middle East have fuelled fears of a potential conflict that could disrupt the region's output and reduce the global supply of crude.

The possibility of retaliatory strikes by Iran against Israel are stoking concerns over oil supply from the world's largest producing region.

5. UK data

The UK is to release a string of economic data that will inform the outlook for monetary policy for the next few months.

Data on wage growth on Tuesday is due out on Tuesday, followed a day later by inflation figures, which will be closely watched for indications of lingering price pressures, particularly in the still hot services sector.

Monthly GDP data on Thursday is expected to show hardly any growth in June, but the economy is expected to have expanded 0.6% in the second quarter.

Meanwhile retail sales data on Friday is expected to rebound in July after declining the previous month.

The Bank of England cut rates for the first time since 2020 earlier this month and markets are currently pricing in a roughly 33% chance of another quarter point cut at its September meeting.

--Reuters contributed to this report