Summer markets cautious ahead of US CPI data

Updated August 9, 2022


*Wall Street strategists say stocks rally at odds with profit outlook

*Australia consumer sentiment slides as rates rise further  

*US dollar loiters off highs as traders eye upcoming CPI

*Asia stocks wobble as focus turns to data and Fed outlook  

US equities closed modestly lower to kick off the week. The S&P500 fell 0.1% and the Nasdaq100 dropped 0.37%. Both indices had moved higher last week, marking three straight weekly gains for the first time since April. That came even as investors anticipated that the bumper US jobs data would encourage the Fed to raise rates further. Asian stocks have eventually traded higher on the day while US futures are in the green.

USD closed lower in a relatively narrow range day. The DXY sits above a zone of support ahead of tomorrow’s US inflation data. EUR/USD continues to trade in its 1.01-1.03 range. USD/JPY printed a small doji hovering around 135. GBP/USD trades below 1.21 and trendline resistance. The antipodeans are rangebound amid mixed surveys in Australia and weak NZ card retail sales. CAD is trading just below its 50-day SMA under 1.29.

Day Ahead – Fed jitters   

We are getting more chatter around potential Fed action in wake of the blockbuster jobs report released last Friday. Citigroup strategists have suggested that the blowout strong jobs surprise coupled with faster-than-expected wage growth “could make a 75bp hike in September very likely and raise the potential for further super-sized increases”. They wouldn’t be surprised at a 100bp hike if core inflation comes in stronger.

Price action in the August fed funds futures contract is pointing to some hedging of an inter-meeting FOMC move. We note that we have more than six weeks to the September meeting (21st). That means we have another NPF report, as well as more inflation data on 13 September. The Jackson Hole symposium takes place later this month. A 75bp hike is currently given a 63% probability.

Chart of the Day – Gold consolidates at key juncture

The last few weeks have seen both precious and industrial metals recoup some of their steep losses over recent months. But bullion-backed ETFs continue to see declines and speculative futures positioning holds the smallest longs since early 2019. This suggests markets still believe central banks will tame rampant inflation without hurting growth.

Gold has pushed out of its long-term bear channel. But it faces resistance at the 50-day SMA and the May low at $1786. Next level above here is $1805 while support is the breakout mark around $1762.

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