Weekly Market Outlook (25 August– 29 August)

Global markets closed last week with heightened volatility as investors digested signals from the Jackson Hole Symposium. Fed Chair Jerome Powell struck a surprisingly hawkish tone, prompting a sharp drop in the U.S. dollar, while U.S. equities managed modest gains.

Gold surged strongly, breaking back above the $3,350 level as dollar weakness boosted safe-haven demand. In contrast, the cryptocurrency market saw another round of heightened swings, with performance mixed across major tokens.

Week Ahead – Inflation Data Set to Drive Global Capital Flows

At the Jackson Hole Symposium, Fed Chair Jerome Powell signaled that the balance of risks is shifting toward potential rate cuts, though he stressed that decisions remain highly data-dependent.

This week, the spotlight will be on the U.S. PCE Price Index—the Fed’s preferred inflation gauge—which could play a pivotal role in shaping policy expectations. Recent CPI figures showed mixed signals, while producer prices surprised to the upside, raising concerns that higher costs at the producer level may eventually pass through to consumers.

As a result, despite Powell’s dovish tilt, the inflation outlook keeps the Fed’s rate path uncertain even a firmed cut is highly likely in September, leaving markets on edge and positioning sensitive to the upcoming data.

In addition, the Bank of Japan will be in focus. Recent signals from BoJ officials suggest a rate hike may arrive sooner than markets anticipate. This week’s Japan inflation data could therefore spark fresh volatility in currency markets, with implications for global capital flows.

Key Events & Economic Data, Why It Matters?

The spotlight this week will be firmly on inflation data—most notably the U.S. PCE Price Index and Japan’s Tokyo CPI, both due Friday. These releases could prove pivotal in shaping the policy outlook for the two most closely watched central banks: the Federal Reserve and the Bank of Japan.

Here are the key events and data releases to watch, and why they matter:

1. US PCE Price Index – 29 August

The recent U.S. inflation data continues to weigh on the Fed’s policy outlook. Markets had previously priced in a firm rate cut in September and three cuts in 2025, but stronger-than-expected CPI and PPI figures have shifted those expectations.

Now, attention turns to the Fed’s preferred inflation gauge—the July PCE Price Index. A hotter reading could reduce the scope for rate cuts, pressuring equities while supporting the dollar.

2. US GDP & GDP Price Index – 28 August

The Q2 U.S. GDP release is a key gauge of overall growth. Beyond the headline figure, the GDP Price Index and sales components will provide deeper insight into how tariffs are impacting both inflation and demand. Investors should focus not just on growth, but also on these sub-measures to better understand the broader economic outlook.

3. Japan Tokyo CPI & Retail Sales – 29 August

Tokyo CPI is another key inflation gauge closely watched by the Bank of Japan, while Retail Sales highlight domestic demand strength. Stronger-than-expected data could prompt markets to reassess the BoJ’s policy path, especially after the recent hints from officials on sooner hike—potentially supporting the yen.

Key Takeaway for the Week

This week, the spotlight remains on the Federal Reserve and the Bank of Japan, two central banks that could shape global market direction. The Fed’s policy outlook continues to dominate risk sentiment across equities, currencies, and bonds, as investors reassess the pace and extent of future rate cuts.

Meanwhile, the Bank of Japan, after years of ultra-loose policy, is drawing attention as the yen remains a key funding currency in global markets. Any signs of a shift in BoJ policy could spark significant moves in capital flows, with potential spillover effects across risk assets worldwide.

In short, changes in policy outlook from either central bank will be pivotal for market sentiment, making this week’s inflation and growth data releases especially critical.