Highly expected US inflation amid new round of rate hikes in Canada and New Zealand

Major share indices are expected to open the week mainly in the red on Monday as investors braced for the latest set of CPI reports, which will be the week's main story, as they expect an acceleration in prices to keep the Fed on their toes throughout the week. Several key S&P 500 components and banks kick off this week's second-quarter earnings season.

Most countries release June inflation data on Wednesday this week. US consumer prices are expected to increase 8.8% year over year and 1.1% month over month, which would be higher than last month. The major drivers are likely to be the price of gas and the cost of energy, which has seen an increase of 3.6% in average crude oil prices in June compared to June last year. This month's core CPI is forecast to come in at 5.8%, down slightly from the 5.9% recorded in May.

EU and US inflation reports

The French, German, and Spanish consumer price indexes are all expected to remain at or near record levels, while the US producer price index is expected to remain high at 10.7% year over year or 0.8% month over month.

With last week's strong jobs report only strengthening the case for tighter monetary policy, the path towards steep rate hikes and quantitative tightening appears set for now. While the CPI report will be pretty outdated by the time the Fed meets at the end of the month, it may still make a difference.

Consumers' reactions to the current economic crosswinds will be revealed in US retail sales data on Friday. It is estimated that sales will increase 0.8% month over month, but that number will not be adjusted for inflation. It will be interesting to see how the consumer's strength has driven inflation and buoyed bulls despite mixed data.

Central banks' meetings

This week, the Reserve Bank of New Zealand and the Bank of Canada are also expected to raise rates on Tuesday and Thursday, respectively, due to rampant inflation around the globe.

The central bank of Canada is expected to raise interest rates by 75 basis points on Wednesday, following the example of the Fed. After a string of encouraging labour market data and an extremely cautious business survey by the Bank of Canada, the move is almost entirely priced in the money markets.

The market reaction will mostly depend on the tone of the press conference and the updated economic forecasts since the rate hike is essentially a done deal. Rate hikes of the same magnitude are already being priced in for September.

China and Britain's production figures

The other major economic event which will take place this week will be the Chinese GDP figures for the second quarter, which will be released on Friday. Investors will be watching for signs of how hard the economy was hit by the COVID-19 lockdowns.

Britain will release its second-quarter GDP data on Wednesday, but the focus is on its next prime minister and leader.