U.S. stocks welcome "Retail Earnings Week": Walmart Inc. (WMT.US) takes the lead, with the market betting that the Federal Reserve has a greater than 70% probability of maintaining its current policy in September.

Notably, after a week filled with concerns over inflation and uncertainty regarding the Federal Reserve's next moves, investors are entering a relatively calm five-day period. Earnings reports from large supermarket chains and other major retailers, along with a significant array of manufacturing data, will be the focus of the market. The S&P 500 Index rose 0.4% last week, the Nasdaq Composite Index increased by 0.6%, while the Dow Jones Industrial Average fell by 0.6%. For investors, the past few weeks have been quite busy. Aside from sudden news and significant political developments concerning GEO Group Inc, a relatively calm week may be just what everyone desperately needs as summer comes to an end and children return to school. While the earnings reports from large supermarkets will dominate this weeks corporate calendar, kicking things off on Tuesday is the performance report from Chinese tech giant Baidu Inc Sponsored ADR Class A (BIDU.US), with a particular focus on its AI cloud business revenue. Retail Earnings Intensify Thursday will see a concentrated release of earnings from major supermarkets, with Walmart Inc. (WMT.US), Alibaba Group Holding Limited Sponsored ADR (BABA.US), Ross Stores, Inc. (ROST.US), and Deere & Company (DE.US) announcing quarterly results, followed by BJ's Wholesale Club Holdings, Inc. (BJ.US) on Friday. In terms of economic data, manufacturing indicators will take center stage. The United States will release industrial production and manufacturing output data on Tuesday, with S&P Global, Inc. releasing its U.S. manufacturing PMI reading on Friday. Additionally, the calendar includes new home starts data anticipated to show a substantial downward trend on Tuesday, along with the release of the minutes from the Federal Reserve's last meeting on Wednesday. Stock Market Rises but Sentiment Remains Low To put it bluntly, market sentiment is in a tough spot. The preliminary consumer confidence survey from the University of Michigan indicates that American consumers have become more pessimistic about the economic outlook in August due to war, rising bond yields, and political uncertainty surrounding GEO Group Inc. Joanne Hsu, the survey's director, stated: While the weakening of confidence has been generally seen across all demographic groups, the declines are particularly pronounced among older consumers, low-income consumers, and those without college degrees. These groups are especially vulnerable to the erosion of purchasing power caused by inflation. Prior to this, the monthly Consumer Price Index (CPI) and Producer Price Index (PPI) data released by the U.S. Bureau of Labor Statistics showed only modest improvements in consumer and wholesale inflation data. The survey indicated that only 8% of consumers expect their income growth to outpace inflation in the next year. This inflation data was sufficient for traders to reduce bets on the Federal Reserve raising interest rates at its September meeting. Before this data was released, the market had roughly even odds regarding an interest rate hike due to July's employment report being significantly weaker than expected. Now, the market estimates the probability of the Fed staying put at about 70%. As another bearish signal, retail sales data released by the U.S. Department of Commerce on Friday indicated a month-over-month decline of 0.6%, disappointing compared to the market expectation of a 0.1% increase and raising ongoing concerns about consumers real purchasing power. AI Capital Expenditure Colliding with the Real Economy As earnings season nears its end, new and larger predictions regarding how much the major cloud giants will invest in AI data center construction this year are emerging. Goldman Sachs Group, Inc. estimates that this figure will reach $1 trillion globally by 2026. JPMorgan forecasts that spending in the U.S. market will hit $697 billion. Meanwhile, Bank of America Merrill Lynch believes there is a "path towards about $1.2 trillion" by 2027. However, money alone cannot solve the problembecause the bottleneck is not at all about funds. Despite investments in new manufacturing capabilities, the chip shortage persists. Construction contractors point out that a lack of skilled labor prevents them from completing projects within clients' expected timelines. Moreover, due to public backlash against data centers, regulatory restrictions are increasingly tightening, including a one-year moratorium in New York State and audits of electrical access in Texas. Electricity may be the greatest barrier of all. Bloomberg New Energy Finance predicts that if growth continues at the current pace, the electricity gap for AI data centers will reach 19 gigawatts (GW) by 2035. George Gianarakis, an analyst at Canaccord Genuity covering power generation companies, stated: When you put all of these factors togethernamely, the ambitions of data center companies looking to secure the power needed to train their algorithmswe are firmly convinced that this will not be realized at the pace they anticipate. Wood Mackenzie recently reported that data center power providers are attempting to alleviate anticipated rejections by submitting multiple applications to different power companies. The energy analytics firm indicated that due to these "false" applications and those submitted by less experienced operators, utilities and grid operators may only approve 28% of the requested power. Dollar Stuck Between Two Forces Jane Foley, a senior foreign exchange strategist at Rabobank, noted in a report to clients last week that the dollar is currently caught in a tug-of-war between oil prices and the Federal Reserve. It all began with the breaking of the long-standing relationship between the dollar and crude oil. Historically, crude oil and the dollar often moved inversely. As oil is priced in dollars, a stronger currency pressures commodities, as buyers face higher costs to purchase them. Foley pointed out that this relationship began to shift in 2022, during Russias invasion of Ukraine and as the U.S. solidified its position as a major energy exporter. This shift became even more marked as the Iran war disrupted shipping in the Strait of Hormuz. Rising oil prices, at one time, posed a clear negative shock to the U.S. economy. However, the Iran war, which sparked the largest energy supply crisis in history, provided major U.S. oil producers with the opportunity to expand production and profit from high oil prices, thereby boosting the country's energy exports. Foley wrote: As long as shipping through the Strait of Hormuz is constrained and supported by the U.S.s position as an energy exporter, the dollar may continue to maintain a safe-haven premium. However, there is also a force countering the dollar: the Federal Reserve. Much weaker-than-expected July non-farm payroll reports and relatively mild July inflation data have prompted investors to lower their expectations for interest rate hikes, removing a key support source for the dollar. Of course, all this is occurring just after the U.S. Treasury implemented significant interventions in the Japanese yen. Notably, as the White House aims to set a support floor for the dollar, Treasury Secretary Scott A. Basset chose to sell euros rather than dollars to buy yen.