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Taiwan and a Choppy August

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Number one: Taiwan tensions

China responded to the visit from US House Speaker Nancy Pelosi with a tough economic blockade of Taiwanese exports and a show of military readiness - but no more. Presumably, tensions will die down once Pelosi returns from her Asian tour- and the effect on markets should be fleeting. However, the chance of escalation remains - with many predicting since the Russian invasion of Ukraine that China might be planning a similar move in Taiwan.

Number two: US inflation data

US CPI data is released on Wednesday. The consensus is for the headline number to come down to 8.9% year-over-year in July from 9.1% prior, while the core reading that excludes food and energy is expected to do the opposite and rise from 5.9% to 6.1% annually. This could be seen as a sign that inflation is becoming more ‘entrenched’ in everyday prices - not just in gasoline because of high oil prices - making higher prices that much harder to get rid of.

Number three: More Q2 earnings

This week sees earnings released from big-hitters including Walt Disney, Softbank and Palantir as well as crypto exchange Coinbase. The standout price reaction to second-quarter earnings releases last week came from former unicorns Pinterest and Uber. Uber reported its first-ever quarterly positive free cash flow and Pinterest gained activist hedge fund Elliot Management as its new largest shareholder, both of which sent the shares up double digits.

Number four: August trading

Summer trading conditions may have already started in some markets, which have turned from trends to sideways ranges. The flat trading often gets more acute after the first week of August when there is little left in the way of market-moving data or central bank meetings. The thin liquidity can lead to quick intraday price spikes where the moves are often short-lived without well-defined trends.

Number five: Dollar pullback over?

The US dollar has been trending lower since the July FOMC meeting where investors took the message that the Fed is preparing to slow down its rate hikes because of risks to the economy. That narrative was challenged by several Fed speakers over the last week. San Francisco Fed President Mary Daly said the central bank is “nowhere near” being almost done fighting the decades-high inflation. More hawkish policy from the Fed should put a floor under the dollar.

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