The week of 25th-29th August is noteworthy due to economic data releases from Australia, Japan, and the U.S. Monday will see new home sales data in the U.S., while Australia’s RBA monetary policy meeting minutes and Japan’s BoJ core CPI y/y will be spotlighted on Tuesday. The U.S. will focus on durable goods orders, consumer confidence, and the Richmond manufacturing index on the same day. Australian inflation data will be released on Wednesday. Thursday will bring preliminary GDP, unemployment claims, and pending home sales data from the U.S.
Friday is set to be busy, with Japan releasing the Tokyo core CPI y/y, Canada reporting GDP m/m, and several key U.S. economic indicators. These include the core PCE price index, personal income and spending, and the revised University of Michigan consumer sentiment and inflation expectations. Attention will be on remarks from FOMC members throughout the week regarding potential September rate changes.
Economic Indicators and Predictions
In the U.S., the new home sales consensus is 635K, slightly higher than the prior 627K. Despite incentives from builders, high mortgage rates keep sales about 7% below last year’s pace. Core durable goods orders are expected to rise 0.3% m/m, with durable goods orders predicted to decrease by 3.8%. Elevated borrowing costs and uncertain trade policies continue to inhibit large-scale investments, and business equipment spending is expected to decline further.
Australia’s July CPI is predicted to increase to 2.3% y/y from June’s 1.9%. The rise in July is linked to expected higher electricity prices following previous discounts. In Japan, Tokyo core CPI y/y is forecast to dip to 2.6% from 2.9%, driven by softer energy prices but with food prices staying high.
In the U.S., the core PCE price index is expected at 0.3% m/m, with personal income and spending m/m anticipated to rise at 0.4% and 0.5%, respectively. U.S. consumer spending shows signs of stabilization, with a 0.5% increase noted in retail consumption. The forecast for personal income is a 0.5% rise, supported by wage growth and more hours worked. However, inflation pressures are expected to intensify with core PCE increasing, leaving the Fed to contend with growth slowdown and persistent inflation.
This week, our focus is squarely on Friday’s U.S. Core PCE inflation report, which will heavily influence expectations for a September Fed rate cut. Markets are currently pricing in about a 60% chance of a 25-basis-point cut, according to the CME FedWatch Tool, a significant shift from the more hawkish stance we saw earlier in 2025. A hot inflation number could quickly reverse this sentiment, creating significant volatility.
Market Strategies and Considerations
Before Friday, we will watch preliminary data like durable goods orders and consumer confidence for clues about economic momentum. The expected weakness in business investment, a trend we’ve seen developing since late 2024, is a growing concern that supports the case for rate cuts. However, traders should be cautious, as the Federal Reserve has signaled that sticky inflation remains its primary battle.
This uncertainty ahead of the PCE release makes options strategies attractive. The VIX has been steadily climbing from the low teens seen earlier this summer to around 17, showing that traders are buying protection against a sharp market move. We see this as a good environment for long volatility positions, such as straddles on the S&P 500, to profit from a breakout in either direction following Friday’s data.
Outside of the U.S., Australian inflation data on Wednesday presents a key opportunity in forex markets. After a surprisingly soft reading in June, a rebound to 2.3% is expected, which would put inflation firmly back within the RBA’s target band and could strengthen the Australian dollar. We are considering AUD/USD call options to position for a stronger-than-expected inflation print.
Meanwhile, Japanese inflation data is unlikely to prompt a policy change from the Bank of Japan, which has kept its policy rate near zero throughout the global tightening cycle of 2023 and 2024. The key “super-core” inflation is expected to remain sticky, but not high enough to force the BoJ’s hand this year. This policy divergence should continue to support carry trades, such as shorting the yen against the dollar.
Ultimately, Friday’s U.S. PCE data will dictate the market’s direction for the coming weeks. A core reading of 0.3% or higher would challenge the rate cut narrative, likely strengthening the U.S. dollar and putting pressure on equities. Conversely, a reading of 0.2% or lower would reinforce bets for a September cut, potentially triggering a rally in risk assets.
