The European session focused on the UK Retail Sales report, which surpassed expectations but did not alter interest rate expectations, as the BoE prioritises inflation.
In Asia, the BoJ’s Ueda Press Conference is set for 06:30 am GMT. Following two members advocating for a rate hike, if Ueda downplays this, the JPY could lose its recent gains.
Retail Sales Impact in the American Session
In the American session, the Canadian Retail Sales report is expected, with forecasts of -0.8% for July compared to 1.5% in June, and the ex-Autos measure at -0.7% versus 1.9% previously. This is not expected to impact the BoC’s decisions, suggesting limited market movements.
Later, a call between Trump and Xi is scheduled for 09:00 am ET/13:00 pm GMT, marking their first interaction since June. Key discussion points include trade, TikTok, and technology. Few agreements are anticipated, likely reiterating points from recent US-China talks in Madrid.
Looking at the UK, any strong retail sales data we see is unlikely to shift the Bank of England’s stance. With inflation having remained stubbornly above the 2.5% mark through mid-2025, the BoE is focused on price stability, not just consumer spending. This suggests traders could fade any knee-jerk strength in the pound on good retail numbers, as the broader interest rate outlook remains unchanged.
We are watching the Bank of Japan’s messaging closely, remembering the dissent that preceded their historic policy shift back in 2024. With Japan’s core inflation now having been above the 2% target for over two years, any hint from Governor Ueda that he is patient on further hikes could see the yen weaken again. This environment keeps options that bet on high USD/JPY volatility, like straddles, in play ahead of any BoJ announcements.
Canadian Economic Outlook
In Canada, the market is positioned for a slowing economy, and any weak retail sales figures will only reinforce that view. This data point will likely confirm the Bank of Canada’s cautious path, especially with household debt-to-income ratios still elevated near 178%. Derivative traders might see weak data as a signal to add to positions that would profit from a lower Canadian dollar, such as buying puts on the currency.
Any high-level calls between the US and China are now viewed through a lens of long-term strategic competition. Just as talks in the past often resulted in limited agreements, we expect current discussions on trade and technology to maintain the tense status quo. For traders, this means headline risk is high, making it wise to consider buying VIX call options or other volatility products as a hedge against any sharp, unexpected rhetoric.
