· Flash UK Services PMI could flatter but staycation and VAT breaks likely to be drive reading

· Eurozone inflation in focus to understand if ECB liquidity play is sufficient to support the economy.

The economic calendar is looking set for a relatively quiet start to the week, with US construction data the only real stand out. Tuesday’s Housing Starts reading for July will be of interest as a modest uptick here is forecast. That will underline how the US economy is remaining open despite the rising COVID-19 case numbers and equally. Any downturn would perhaps paint a bleaker picture as to where the world’s largest economy is heading as we move into the Autumn.

UK Consumer Price Inflation data for July will be released on Wednesday morning and the market will be keen to see a continued rebound after that year-on-year low in May of just 0.5%. The early indications of the UK economy growing post-lockdown are certainly encouraging and hopes are that a very modest improvement can be seen with the annualised reading. However this print will also show to what extent aggressive discounting is proving to be a driving factor in the post-lockdown rebound,

Eurozone Consumer Price Inflation data for July will also be printed and again expectations are that the annualised figure will remain in positive territory, stable at around 0.4%. This will also serve to placate markets, although given the manner in which the ECB has flooded the market with cheap money in recent weeks, not only is such an outcome expected, failure to show that a degree of inflation can be maintained will raise fresh questions over what the central bank needs to do next.

Thursday sees the publication of Eurozone Construction Output for June and this has the potential to help illustrate the likely shape of the economic recovery. Expectations put the annualised reading at around -7%, a marked improvement from the -31% posted in April and something that may give confidence that a degree of normality could return before the year end.

UK Retail Sales covering July will be issued on Friday morning and could prove to be an early indication regarding the strength of the UK’s economic recovery. Whilst the monthly uptick of 13.5% in June was clearly an outlier, given the upbeat picture painted by last week’s GDP reading, the market will expect to see further growth here. The risk however is rising unemployment and if this is shown to be filtering through to weaker demand from consumers, questions may be asked over just how achievable that ‘V’ shaped recovery is.

Rounding off the week, UK Flash PMI readings covering both manufacturing and services will be released. This offers an early insight into how the economy is faring in August and that services figure in particular will be closely scrutinised. The country is seen as having taken a significant economic hit off the back of its reliance on the sector, so initiatives including VAT reductions on hotel stays, the half price dining deal and ongoing overseas travel restrictions in the peak summer season should see momentum maintained here. If it proves to be a gruelling few days on the data front, the expectation that each print here will comfortably exceed the break-even 50 mark may be sufficient to bolster sentiment as we head into the weekend break.

Article by Tony Cross of Monk Communications. This article first appeared in Octo Members, the app-based private community for UK financial services professionals

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