By Noreen Burke

Investing.com — Wednesday’s July U.S. inflation data will be the main highlight in the week ahead after last Friday’s much stronger-than-anticipated jobs report quashed hopes that the Federal Reserve may relent in its aggressive campaign to tame the highest inflation in decades. Any indication that inflation is still not close to peaking could test the recent rally in U.S. stock markets. Investors will also get to hear from several Fed speakers, with policymakers under renewed pressure to deliver a third 75 basis point rate hike at their upcoming meeting in September. Meanwhile, earnings season is winding down and U.K. GDP data on Friday may point to the start of a contraction after the Bank of England warned last week that the U.K. faces more than a year of recession. Here’s what you need to know to start your week.

1. U.S. inflation data

Inflation has for months confounded expectations that it would ease, remaining more than three times higher than the Fed’s 2% target.

Investors’ attention will be focused on Wednesday’s consumer price index figures with economists expecting the annual rate of inflation to moderate to in July from 9.1% in June, which was the largest increase since 1981.

But core CPI is expected to increase by month-over-month, pushing the annual rate up to from 5.9% in June, underlining the difficulty the Fed faces trying to get inflation back in line with its target.

figures for July will be released on Thursday, along with the weekly report on , while the will be published on Friday.

2. Fed speakers

Chicago Fed President Charles Evans, Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly are due to speak in the coming week and their comments will be closely watched.

The question of whether the Fed will deliver a third straight 75 bps rate hike next month or ease back slightly is currently of key importance to investors.

The is a double-edged sword for the Fed – they can continue to hike rates to tackle inflation without causing a sharp increase in the unemployment rate, but on the other hand, the labor market will need to cool to help ease price pressures.

Fed Governor said Saturday that the Fed should consider more 75 bps rate hikes to bring inflation back in line with the central bank’s target, echoing recent comments by other Fed officials.

3. Test for U.S. stock market rally

A rally in U.S. stocks may be tested in the week ahead as Wednesday’s inflation data could quash hopes for a dovish shift by the Fed after it delivered 225 bps worth of rate hikes so far this year.

The and the ended July with their biggest monthly percentage gains since 2020, boosted in part by hopes that the Fed may pull back in its aggressive campaign to curb inflation.

Continued gains could hinge on whether investors believe the Fed is succeeding in its battle against inflation. Signs that inflation is still not peaking could dent expectations that the central bank will be able to stop hiking rates early next year, sending stocks lower.

“We’re at the point where consumer price data has reached a Super Bowl level of importance,” Michael Antonelli, managing director and market strategist at Baird told Reuters. “It gives us some indication of what we and the Fed are facing.”

4. Earnings

Markets are more than halfway into the second-quarter reporting period and so far, U.S. companies have been reporting mostly upbeat news, surprising investors who had been bracing for a gloomier outlook on both businesses and the economy.

Some 78% of earnings reports are beating Wall Street expectations, above the long-term average, according to Reuters.

Going into earnings season, investors had been worried that if high inflation and rising interest rates were about to tip the economy into recession, earnings estimates for 2022 were too high.

Disney (NYSE:), the highest profile name to report in the coming week will release results after the market close on Wednesday. Some other names set to report during the week include Take-Two (NASDAQ:), Palantir (NYSE:), Wynn Resorts (NASDAQ:), Six Flags (NYSE:) and travel stocks Norwegian Cruise Line (NYSE:) and Spirit Airlines (NYSE:).

5. U.K. GDP

The U.K. is due to release data on monthly GDP for and the overall second on Friday, after the Bank of England warned last week that it expects the economy to enter a 15-month recession later this year.

However, the National Institute of Economic and Social Research, a think tank, believes the recession may start in the current quarter.

The BoE said consumer price inflation was now likely to peak at 13.3% in October – the highest since 1980 – due mostly to surging energy costs following Russia’s invasion of Ukraine and the adjustment to Brexit.

The British central bank has hiked six times since December.

–Reuters contributed to this report