(Reuters) - If the U.S. Federal Reserve does not start cutting interest rates relatively soon, U.S. consumers could become dispirited, Bank of America CEO Brian Moynihan said on Sunday.

At the end of July the Fed kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool.

"They've told people rates probably aren't going to go up, but if they don't start taking them down relatively soon, you could dispirit the American consumer," Moynihan told CBS in an interview.

"Once the American consumer really starts going very negative, then it's hard to get them back."

Moynihan, pressed about Republican candidate Donald Trump's statement that presidents should have a say over Fed decisions, said people were free to give Federal Reserve Chair Jerome Powell advice and it was then his job to decide what to do.

"If you look around the world's economies and you see where central banks are independent and operate freely, they tend to fare better than the ones that don't," he said.

Investing.com -- Investors will be looking at key inflation data on Wednesday for fresh clues on the potential size of an expected September rate cut by the Federal Reserve. Markets look likely to remain volatile, while retail earnings will be watched for clues on the strength of consumer spending. Here's your look at what's happening in markets for the week ahead.

1. CPI data

July CPI data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target.

A reading that shows only modest cooling could allay fears that the Fed has sent the economy into a tailspin by leaving rates elevated for too long. But a weak report could bolster recession worries, potentially sparking fresh market volatility.

The economic calendar also includes retail sales numbers for July as well as the weekly report on initial jobless claims.

Investors will also get the chance to hear from several Fed officials including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker and Chicago Fed President Austan Goolsbee.

Comments from a trio of Fed policymakers indicated on Thursday that they were more confident that inflation is cooling enough to cut rates.

2. Volatility risk

Investors seem likely to remain on edge in the coming week after last Monday’s stock market dive triggered by a combination of U.S. recession fears and the unwinding of a global yen-funded carry trade.

A bigger-than-expected drop in jobless claims on Thursday indicated that fears over the health of the labor market were overblown, helping markets recover most of their losses by Friday’s close.

LONDON (Reuters) - Global markets are having a torrid time of late as U.S. recession fears creep back in and the effects of the yen's sudden surge ripple out.

U.S. inflation numbers, the latest Japanese economic data and a slew of UK data could give investors a fresh steer.

Here's your guide to the week ahead in financial markets from Ira Iosebashvili in New York, Rae Wee in Singapore and Dhara Ranasinghe, Samuel Indyk and Amanda Cooper in London.

1/ SUMMER CHILL, NO WAY

Investors should have learned by now that there's no such thing as a "quiet" summer in markets.

A year ago, Treasury yields rose sharply on worries about the U.S. fiscal outlook. The summer before, inflation and rate hike fears jolted markets.

Monday's meltdown saw Japan's second-biggest stock crash and the largest ever intraday jump in Wall Street's most-watched gauge of investor anxiety, the VIX. That means the coming days will be tinged with nervousness, even if there are nascent signs of recovery.

Focus is on just how much more of an unwinding of so-called yen carry trades, seen as one reason behind the rout, is left and whether the pricing-in of aggressive U.S. rate cuts are justified by upcoming data.

And with concerns about a broader Middle East conflict and a U.S. election looming, volatility is unlikely to disappear soon.

2/ READY FOR MORE?

Investors are now bracing for Wednesday's U.S. consumer price data for a read on how inflation is faring in the world’s largest economy amid recent signs that growth is wobbling.

Market hopes of an economic soft landing have been shaken by recent weak data, including news of a rapid down-shift in the jobs market. The slowdown fears have coalesced with the unwinding of a global carry trade to deliver markets a wallop.

Some analysts believe recession worries are premature.

Economists polled by Reuters expect both headline and core consumer prices rose 0.2% in July from a month earlier.

A number that shows only modest cooling could allay fears that the Federal Reserve has sent the economy into a tailspin by leaving rates elevated for too long. But a weak report could bolster recession worries, potentially sparking fresh market volatility.

3/ DISENCHANTMENT

    Japan reports preliminary second-quarter growth figures on Thursday, at a time where some analysts have critiqued the Bank of Japan's (BOJ) recent rate hike as a policy misstep that triggered the brutal selloff in stocks.

To be sure, the connection isn't quite so straightforward.

The BOJ's hike sparked a resurgence in the yen and extended an unwinding of the hugely popular yen carry trade, which in turn sent investors de-leveraging and shedding their stock holdings to cut losses.

So should Thursday's data point to a brighter outlook, Japanese policymakers can finally breathe a sigh of relief. A downside miss and they'd have to find more reasons to justify July's hike.

    It's yet another busy week in Asia-Pacific, with a New Zealand rate decision due on Wednesday, alongside a slew of data from China.

4/ DELICATE BALANCE

After July's finely balanced decision to cut UK rates to 5.0%, the Bank of England will have a new set of data points to go through that might help determine what the coming few months look like for monetary policy.

Consumer inflation, including for the still-hot services sector, as well as second-quarter GDP and retail sales, are all in the mix.

Right now, markets expect rates to fall by a percentage point over the coming nine months.

But given how close July's decision was, UK assets are likely to be extra sensitive to anything that might suggest the BoE has to deviate from that expected path. Sterling is looking fragile and UK equities have seen nothing but weekly outflows for four straight months, according to LSEG/Lipper data.

5/ EUROPE'S SILVER LINING

There's a silver lining for European shares, down roughly 5% so far this month, and that's corporate profits, with earnings set to grow for the first time in five quarters.

According to LSEG I/B/E/S data, Q2 earnings are expected to have increased 3.8% from the same period last year, the first quarterly rise since the first quarter of 2021. Almost 56% of companies have reported results that beat analyst estimates.

For sure, there are more tests ahead. Switzerland's largest bank UBS reports earnings on Wednesday, while it's a big week for the insurance sector, with Hannover Re, Aviva (LON:AV), NN (NASDAQ:NNBR) Group and Admiral set to report.

Overall, the Q2 earnings season suggests signs of a consumer slowdown, but strong growth in financials, energy and utilities

sectors have helped offset weakness elsewhere.

(Graphics by Prinz Magtulis, Pasit Kongkunakornul, Kripa Jayaram and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Toby Chopra)

By Duncan Miriri

NAIROBI (Reuters) - Nervous investors are avoiding long-dated Kenyan Treasury bills and bonds, central bank data showed, putting more strain on the government's plans to pivot to domestic borrowing after scrapping controversial tax hikes.

The latest debt sale, on Aug. 1, saw the benchmark 1-year Treasury bill get less than a tenth of demand for the amount on offer. That weak demand is making it even more expensive – and complicated – to fund the debt-burdened government's budget.

"It is going to be a problem and it feels like they are just kicking the can down the road," said Kenneth Minjire, senior associate for debt and equity at AIB-AXYS, a Nairobi-based brokerage.

President William Ruto abandoned tax hikes worth more than 346 billion shillings ($2.67 billion) after protests that killed more than 50 people.

The U-turn forced the finance ministry to hike local borrowing targets by 42% to 404.6 billion shillings ($3.12 billion), even as securities, apart from 91-day Treasury bills, were already underperforming at auction.

PRECIPITOUS FALL

Demand for Kenyan debt instruments at the central bank's weekly auction fell precipitously as domestic disruptions and violence engulfed major urban centres, data from the central bank showed.

Investors offered to buy just a third of what the central bank offered in Treasury bills during the week of June 24, when the turmoil erupted, while the subscription rates for that week's bond auction were just 2.4%.

Before the protests, the subscription rates for Treasury bills was 94.7%, while bonds were oversubscribed.

Central Bank governor Kamau Thugge downplayed concerns over local financing, noting it was early in the financial year, and that even the revised borrowing target was lower than the previous financial year.

"I really don't see that we will not be able to meet the domestic financing requirements," he told a news conference on Wednesday.

The finance ministry did not respond to requests for comment.

'OVER-BORROWING'

Finance minister John Mbadi said the local debt portfolio was already too high. Total domestic debt stands at $750 billion, three times the stock of external debt, he told a parliamentary vetting panel on Saturday.

"We are over-borrowing domestically," he said, without commenting on whether he would cut the domestic borrowing target.

Mbadi, who was sworn into office on Thursday, could struggle to cut it. The Kenya Bankers Association, a lobby group, warned that the funding bill withdrawal and credit ratings downgrades that followed "risk constraining external funding options even more."

The country's Eurobonds have also slid, meaning if Kenya wanted to issue again, it would be more expensive.

DELAY IN IMF FUNDING?

Potential delays in IMF funding also loom; Kenya had secured a staff level agreement for the seventh review of its $3.6 billion bailout before the protests, but the board had not signed off.

Officials submitted a revised economic repair plan without the tax hikes, which it hopes will secure its next $600 million tranche.

But Ruto's efforts to fill the gap left by tax reversal are mixed; his pledge to cut 346 billion shillings worth of spending was halved by the time the law passed, leaving more risk to the country's balance sheets.

"The path to achieving fiscal targets has become increasingly challenging," said Fitch, the global credit ratings agency, while downgrading Kenya's credit last Friday.

Further compounding the pressure, there are near-weekly attempts to rally and keep Ruto from increasing any other taxes, such as on fuel.

"We must stay glued to the issues," said Martha Karua, an opposition party leader.

($1 = 129.5000 Kenyan shillings)

BEIJING (Reuters) -China's consumer prices rose at a slightly faster-than-expected rate in July partly due to weather disruptions to food supplies, while producer deflation persisted, keeping the country's underlying consumption trends soft in a test for policymakers.

China's frail consumer sector been a major focus for Beijing as weak domestic demand hobbles the world's second-biggest economy while manufacturing activity shrinks.

The consumer price index (CPI) edged up to a five-month high of 0.5% year-on-year in July, versus a 0.2% rise in June, the National Bureau of Statistics (NBS) reported on Friday, beating a 0.3% increase in a Reuters poll of economists.

On a month-on-month basis, the CPI rose 0.5% against a 0.2% fall in June and a forecast 0.3% increase.

High temperatures and rainfall in some areas last month pushed up food prices, partly contributing to the monthly return to growth, said NBS statistician Dong Lijuan.

Food prices swung from a drop of 2.1% on-year in June to an unchanged outcome in July, while the growth in non-food prices slowed from 0.8% in June to 0.7% last month.

"There's a sharp contrast between food and ex-food CPI... none of the other goods and services saw inflationary moves, suggesting no sign of a pickup in domestic demand," said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Core inflation, excluding volatile food and fuel prices, gained 0.4% on-year in July, down from 0.6% in June.

Weak domestic demand has become a major pain point for the economy, while hopes for an export-led recovery have also been crimped by rising trade tensions with the West, tariffs on Chinese goods and fears of a U.S. recession.

Consumers have largely shunned incentives to revive consumption, as a prolonged housing downturn, job insecurity and a wall of local government debt inhibit them from purchases of especially big-ticket items.

Car sales, the biggest component of China's retail sales, fell for the fourth month running in July despite a national auto trade-in program and eased auto loan rules.

China's capital city Beijing posted a 6.3% slide in retail sales in June while the financial hub of Shanghai saw the gauge of consumption fall 9.4%, underperforming a national rise of 2%, per official data.

The producer price index (PPI) was down 0.8% in July from a year earlier, unchanged from the previous month, and above an expected 0.9% fall.

Chinese leaders pledged at the end of July that the stimulus measures needed to reach this year's economic growth target will be targeted at consumers, days after announcing the allocation of 300 billion yuan ($41.96 billion) in ultra-long treasury bonds to finance equipment upgrades and consumer goods trade-ins.

($1 = 7.1502 yuan)

By Leika Kihara, Pasit Kongkunakornkul, Vineet Sachdev and Kripa Jayaram

(Reuters) - The Japanese yen has been under pressure in the past few years as markets focused on the wide U.S.-Japan interest rate differentials.

The yen lost more than 20% against the dollar since the outset of 2022, prompting several rounds of intervention by Tokyo to prop up the currency in September and October that year. It kept falling despite further intervention in April and May 2024, touching a 38-year low of 161.96 to the dollar on July 3. Japan is suspected to have stepped in again in mid-July to put a floor under the yen.

The yen's downtrend has reversed in recent days, following the Bank of Japan's July 31 decision to raise interest rates and ahead of an expected loosening of U.S. monetary policy.

The BOJ's hawkish move, along with investors' concerns about U.S. growth, jolted global stock and bond markets. It triggered an unwinding of the carry trade, whereby investors borrow cheaply in yen to invest in higher-yielding assets. The yen rebounded sharply against the dollar, but remains relatively weak by the standards of the past few decades.

The yen's fluctuations matter because the currency has long provided a cheap source of funding for global investors, even as other central banks raised borrowing costs. 

BOJ'S SHIFTING INTERVENTION GOAL

Japanese authorities had historically intervened to prevent the yen from strengthening too much, as a strong yen hurts the export-reliant economy. This trend changed in 2022, when Tokyo stepped in and bought yen to defend its value, after the currency plunged on expectations that the BOJ would keep interest rates ultra-low even as other central banks tightened monetary policy to combat soaring inflation.

In both cases, authorities buy or sell yen, usually against the dollar. The Ministry of Finance decides when to step in and the Bank of Japan acts as its agent. 

The decision is highly political because Japan's reliance on exports makes the public more sensitive to yen moves than in other countries. With many manufacturers now shifting production overseas, the benefit of a weak yen has diminished. Instead, a weak yen has become a pain for households and retailers by inflating the cost of importing fuel and raw material.

Tokyo intervened on April 29 and May 1 this year, according to Ministry of Finance data, to combat the yen's declines. After the moves failed to reverse the yen's downtrend, Japanese authorities are suspected by market participants to have intervened again on several occasions in July. 

Japanese authorities typically do not confirm whether they intervened in the currency market, and say only that they would take appropriate action as needed against excessively volatile foreign exchange moves.

WHY DID THE YEN WEAKEN IN RECENT YEARS?

Various factors caused the yen's decline. 

First, the U.S. Federal Reserve's aggressive interest rate rises and the BOJ's slow pace in normalizing monetary policy kept the gap between U.S. and Japanese interest rates large, thereby keeping the yen less attractive compared with the dollar. 

Second, Japan is now importing more fuel and raw material than in the past, which means companies are converting yen into foreign currencies to make payments. 

Third, many big Japanese manufacturers that shifted production overseas have reinvested profits abroad, rather than repatriating them. That reduced demand for yen.

WHY ISN'T THE BOJ RAISING RATES MORE RAPIDLY?

The BOJ ended negative interest rates in March and raised its short-term policy rate again to 0.25% from 0-0.1% in July. Governor Kazuo Ueda has signaled the chance of raising rates again if Japan makes further progress toward meeting the central bank's 2% inflation target, as it projects.

Analysts expect the BOJ to eventually raise interest rates to levels deemed neutral to the economy, around 1% to 1.5% in the next few years. But such a gradual tightening would leave Japanese borrowing costs very low compared with other countries.

Japanese policymakers are cautious about raising rates too aggressively for fear of hurting already-weak consumption and threatening a fragile economic recovery. They are also wary of the risk of triggering a sharp rise in long-term interest rates that would increase the cost of funding Japan's huge public debt.

WHAT ARE THE DRAWBACKS OF A WEAK YEN?

A weak yen pushes up the cost of importing fuel, food and raw material. That in turn hurts retailers and households through higher living costs. 

Inflation data shows that the rate of core inflation, which excludes volatile fresh-food prices but includes fuel costs, has been higher than the central bank target for the past 27 months. 

WHAT ARE THE BENEFITS OF A WEAK YEN?

A weak yen, however, is not necessarily all bad for Japan's economy. 

The yen's decline benefited Japanese export firms by inflating the yen-based profits they earned overseas. The increased profits may lead to higher wages and help underpin consumption.

A cheaper yen also boosts tourism. The number of overseas visitors to Japan has surged over the past couple of years, giving hotels, department stores and others relief after enduring COVID-19 restrictions.

($1 = 146.3100 yen)

By Martin Coulter

LONDON (Reuters) - An ongoing European Commission investigation into social media platform X could take its handling of harmful content related to the recent UK riots into account, a spokesperson said.

Last month, European Union officials issued charges against X, owned by tech billionaire Elon Musk, under the Digital Services Act (DSA), which requires very large online platforms to do more to tackle illegal content and risks to public security.

While Britain has not been a member of the EU since 2020, harmful content in breach of DSA rules shared in Britain may have been seen by users in Europe, constituting a potential breach of the law.

Disinformation and calls to violence spread on social media in Britain in recent days, after far-right and anti-Muslim groups seized on the fatal stabbing of three young girls.

"What happens outside of the EU is not covered by the DSA, but what happens in the UK is visible here. If there are examples of hate speech or incitements to violence, they could be taken into account as part of our proceedings against X," a Commission spokesperson told Reuters.

X did not immediately respond to a request for comment.

By Swati Bhat and Sudipto Ganguly

MUMBAI (Reuters) - The Reserve Bank of India (RBI) kept its key interest rate unchanged on Thursday, as widely expected, retaining its focus on bringing inflation down even as global market volatility left other major central banks poised to ease policy.

The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a ninth straight policy meeting.

Four out of six MPC members voted in favour of the rate decision.

The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.

The monetary policy stance was retained at 'withdrawal of accommodation' to aid the MPC's focus on bringing inflation towards the target, with four of the six members voting in its favour.

All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.

It is important for monetary policy to stay the course in bringing inflation down towards its 4% medium term target, RBI Governor Shaktikanta Das said, adding that India's food inflation remains "stubbornly" high.

"Growth remains resilient, inflation has been trending downward and we have made progress in achieving price stability, but we have more distance to cover," Das said.

Ensuring price stability is important for sustainable growth, Das said.

"With growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

By Nell Mackenzie

LONDON (Reuters) -A wager that stock markets would stay calm has cost retail traders, hedge funds and pension funds billions after a selloff in global stocks, highlighting the risks of piling into a popular bet.

The CBOE VIX index, which tracks the stock market's expectation of volatility based on S&P 500 index options, posted its largest-ever intraday jump and closed at its highest since October 2020 on Monday as U.S. recession fears and a sharp position unwind have wiped off $6 trillion from global stocks in three weeks.

Investors in 10 of the biggest short-volatility exchange traded funds saw $4.1 billion of returns erased from highs reached earlier in the year, according to calculations by Reuters and data from LSEG and Morningstar.

These were bets against volatility that made money as long as the VIX, the most-watched gauge of investor anxiety, remained low.

Wagers on volatility options became so popular that banks, in an effort to hedge the new business they were receiving, might have contributed to market calm before the trades suddenly turned negative on Aug. 5, investors and analysts said.

Billions flew in from retail investors but the trades also garnered the attention of hedge funds and pension funds.

While the total number of bets is difficult to pin down, JPMorgan estimated in March that assets managed in publicly traded short volatility ETFs roughly totaled $100 billion.

"All you have to do is just look at the intra-day rate of change in the VIX on Aug. 5 to see the billions in losses from those with short vol strategies," said Larry McDonald, author of How to Listen When Markets Speak.

But McDonald, who has written about how bets against volatility went wrong in 2018, said publicly available data on ETF performance did not fully reflect losses incurred by pension funds and hedge funds, which trade privately through banks.

On Wednesday, the VIX had recovered to around 23 points, well off Monday's high above 65, but holding above levels seen just a week ago.

VOLATILITY'S RISE

One driver behind the trading strategy's popularity in recent years has been the rise of zero-day expiry options - short-dated equity options that allow traders to take a 24-hour bet and collect any premiums generated.

Starting in 2022, investors including hedge funds and retail traders, have been able to trade these contracts daily instead of weekly, allowing more opportunities to short volatility while the VIX was low. These contracts were first included in ETFs in 2023.

Many of these short-term options bets are based around covered calls, a trade that sells call options while investing in securities such as U.S. large-cap stocks. As stocks rose, these trades earned a premium as long as market volatility remained low and the bet looked likely to succeed. The S&P 500 rose over 15% from January to July 1 while the VIX fell 7%.

Some hedge funds were also taking short volatility bets through more complicated trades, two investor sources told Reuters.

A popular hedge-fund trade played on the difference between the low volatility on the S&P 500 index compared to individual stocks that approached all-time highs in May, according to Barclays research from that time.

Hedge-fund research firm PivotalPath follows 25 funds that trade volatility, representing about $21.5 billion in assets under management of the roughly $4-trillion industry.

Hedge funds tended to bet on a VIX rise, but some were short, its data showed. These lost 10% on Aug. 5 while the total group, including hedge funds that were short and long volatility, had a return of between 5.5% and 6.5% on that day, PivotalPath said.

'DAMPENED VOLATILITY'

Banks are another key player standing in the middle of these trades for their larger clients.

The Bank of International Settlements in its March quarterly review suggested that banks' hedging practices kept Wall Street's fear gauge low.

Post-2008 regulations limit banks' ability to warehouse risk, including volatility trades. When clients want to trade price swings, banks hedge these positions, the BIS said. This means they buy the S&P when it falls and sell when it rises. This way, big dealers have "dampened" volatility, said the BIS.

In addition to hedging, three sources pointed to occasions where banks hedged volatility positions by selling products that allowed the bank to even out its trades, or remain neutral.

Marketing documents seen by Reuters show that Barclays, Goldman Sachs and Bank of America this year were offering complex trade structures, which included both short- and long-volatility positions.

Some, according to the documents, do not have a constant hedge built into the trade to buttress against losses and are protected "periodically," the papers say. This might have exposed investors to higher potential losses as the VIX spiked on Aug. 5.

LONDON (Reuters) - Britain's housing market looks set for a sales bounce in the coming months after the Bank of England cut interest rates and the new government turned its focus to the sector, a survey showed on Thursday.

The Royal Institution of Chartered Surveyors said its measure of expected sales over the next three months was the strongest since January 2020, immediately before the coronavirus pandemic struck Britain.

"The new government's focus on boosting housing development alongside the recent quarter-point base rate cut does appear to have shifted the mood music in the sales market," RICS Chief Economist Simon Rubinsohn said.

"Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector," he added.

The overall picture for the housing market brightened slightly last month as mortgage rates fell ahead of the Aug. 1 BoE cut to borrowing costs from their 16-year high.

A measure of new buyer enquiries turned positive for the first time in four months and agreed sales also improved.

But RICS' measure of house price prices in July slipped back to -19 from June's -17. Economists polled by Reuters had expected an improvement to -10.

Other house price data previously released by mortgage lenders Nationwide and Halifax pointed to a pickup in price growth last month.

The picture was bleaker in the rental sector where demand from tenants increased while a measure of supply shrank, suggesting further rental price rises ahead.

Rubinsohn said the findings reflected what he called "an increasingly hostile environment for investment in the sector".

The previous government's delayed plans to tighten no-fault eviction rules have been picked up by the new administration, worrying some landlords, while changes to tax and energy efficiency rules have added to their costs in recent years.