S&P 500 E-mini futures edged up slightly on Monday, up 0.23%, as they continue to pare back sharp losses from the start of the month.
The stock market is bracing for another potentially volatile week, driven by key data releases that could clarify the state of the U.S. economy and even trigger market fluctuations.
Additionally, potential shocks from the Middle East, where escalating conflict could spiral out of control, may further impact market stability in the coming days.
As markets await the Consumer Price Index (CPI) for July, with annual inflation expected to hold steady at 3% and prices set to return to growth on a monthly basis. We also await producer price, retail sales, housing market data, and inflation expectations and consumer confidence surveys.
What to watch out for with new data is the unexpected market reaction. For instance, if inflation unexpectedly slows sharply, it could boost hopes for a broad-based rate cut this year. However, a negative surprise could raise further concerns about the health of the U.S. economy – much like the shock from the July nonfarm payrolls numbers.
The massive swings could also trigger more liquidations in equity and index derivatives positions, which could lead to more chain reactions in the markets. The sharp volatility we’ve seen since late July have already reduced open interest in CME S&P 500 futures for three straight weeks, the longest streak in a year., according to Commitments of Traders reports from the Commodity Futures Trading Commission (CTFC).
What could also fuel volatility this week are unexpected surprises from the Middle East. A multi-front response from at least Iran and Hezbollah against Israel could come in the coming days, according to Axios, citing its sources. This comes amid a deadlock in negotiations over the war in Gaza, a situation that could help prevent a broader regional conflict.
Despite repeated assurances of no direct intervention, the United States is increasingly involved in the region, a move that could eventually lead to its interests being targeted. This involvement includes deploying a second aircraft carrier and the rare disclosure of sending a nuclear submarine armed with ballistic missiles to the region’s waters, according to The New York Times.
