Markets, particularly in Europe, started the day on a positive note as they hoped businesses will benefit from an increase in Chinese tourism spending – luxury goods in particular rose as Chinese buyers account for around 25% of European luxury goods sales, including purchases by tourists. Chinese can now travel more easily again. In pre-market U.S. trading, Wall Street is little changed and moving sideways ahead of the most important and highly anticipated U.S. consumer price report (12:30 UTC+0) this week.
The report on U.S. consumer prices will be crucial for investors to determine whether the Fed will not raise interest rates further. Analysts expect the inflation data to underscore the picture of disinflation, with core prices in particular showing signs of cooling. I think the most likely reading is similar to June's, but I give the report a 33% chance of coming in higher than expected – specifically, inflation or core inflation may have risen 0.3% m-o-m, rather than the expected 0.2% for both inflation measures.
The risk of increased volatility and profit taking is relatively high, although I generally expect U.S. equities to remain resilient as the outlook for macroeconomic conditions remains positive. I also do not expect the Fed to raise interest rates another time, but to leave them at current levels for longer. Nevertheless, the upside potential for equities is very limited after the record performance in the first half of the year.
One risk factor for inflation is rising energy prices. In Asian trading, oil prices hit their highest level in nearly nine months, with WTI above $84 a barrel after rising 3% in the previous two sessions. CPI data from the U.S. will also have a strong impact on oil prices. Oil prices remain bullish and look to move towards $90.00 before the end of this quarter or early in the fourth quarter.
The USD remains supported overall on the expectation that the Fed can and will keep rates high for longer. The Consumer Price Index will determine how the USD trades for the rest of the week and even August. I expect disinflation to slow, which would keep USD demand up a bit longer and push US Treasury yields higher.
👁 ROB'S MARKET OVERVIEW:
Today's movements are depended on US CPI data. We believe that disinflation slowed down and that concerns about inflation becoming more stubborn is rising in the process.
August 10, 2023
🇺🇸 US Markets ↕️/↘️ (only if disinflation slowed down or inflation even accelerated – otherwise ↗️)
Energy Stocks ↕️/↗️
💱 Forex (completely US CPI data driven today)
USD ↕️/↗️ (only if disinflation slowed down or inflation even accelerated – otherwise ↘️)
EUR, CAD ➡️/↗️
AUD ➡️/↗️ (gains limited after positive performance during Asian trading)
GBP, CHF ➡️
JPY ↘️
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️
Natural Gas prices ↕️
Metal prices ↕️
Precious Metal prices ↕️/↘️ (only if disinflation slowed down or inflation even accelerated – otherwise ↗️)
⚡️Cryptos ↕️ (Optimism increases with PayPal's stablecoin, possible positive SEC regulations).
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert
