Market News by OnEquity

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Dollar rises in light of PPI; Pound rises on wage data
The U.S. dollar advanced within a small range as traders awaited the July producer price index data, the first of the week’s inflation data, as a roadmap for future monetary policy decisions by the Federal Reserve.

The dollar awaits PPI data​

The producer price index, which measures changes in producer prices, is expected to rise 0.2% month-over-month in July, which would mean an anal increase of 2.3%, down from 2.6% last month.

The underlying figure, which does not take into account volatile components such as food and energy, would also rise by 0.2% on a monthly basis, down from 0.4% in June, with an annual increase of 2.7%, down from 3.0%.

According to analysts, they expect a consensus figure of 0.2% month-on-month in the core and underlying measures to ease market jitters about a round of CPI/PCE hikes that would deal a blow to risk sentiment just as global stock indices finish their recovery from recent losses.

On Wednesday, consumer price index data will be released, which is also expected to indicate a slight cooling of inflation in July.

Investors will be scrutinizing the data to determine whether the Fed will implement a 50 basis point or a 25 basis point cut at its September meeting, according to CME’s FedWatch tool, traders are evenly split between the two options.

At the end of last month, the Fed kept the policy rate in the same 5.25%-5.50% range where it has been for more than a year, although it indicated that a rate cut could be generated in September if inflation continues to cool.

Pound rises on wage growth​

Turning to Europe, GBP/USD rose 0.3% to 1.2801 following the release of data showing that UK wage growth excluding bonuses rose by around 5.4% in June.

Although this figure is a fall from the revised 5.8% last month, it is still above the estimated 4.6% growth and signals that the Bank of England will struggle if it wants to curb inflation completely.

Additionally, UK grocery inflation rose this for the first time, the increase not recorded since March last year, with market researcher Kantar reporting that annual grocery price inflation was 1.8% in the four weeks to August 4, up from 1.6% in the previous four-week period.

EUR/USD fell about 0.1% to 1.0922, with the euro losing slightly after consumer prices in Spain fell 0.5% in July, which appears to be a 2.8% annual rise.

The European Central Bank began cutting interest rates in June, and many expect policymakers to agree to another reduction in September, especially as inflation shows signs of dissipating.

Yen loses ground​

Turning to Asia, USD/JPY rose 0.4% to 147.81 with the yen losing ground on a Reuters report that the Japanese parliament is planning to hold a special session on August 23 to discuss the central bank’s decision last month to raise interest rates.

Last week, the yen fell to near the 141 level on increased safe-haven demand and a reversal of carry trades, although doubts remain about the Bank of Japan’s room for further rate hikes in 2024.

The USD/CNY lost about 0.1% to 7.1704, with industrial production data along with retail sales expected later this week.

 

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U.S. stock markets rise: PPI and Home Depot results in focus
U.S. stock index futures rose on Tuesday in quiet trading in anticipation of the release of key inflation data that could pave the way for a Federal Reserve rate cut in September.

Wall Street’s major indexes traded with some signs of ups and downs on Monday as investors appeared reluctant to commit ahead of the inflation data, considerably after last week’s spike in volatility.

The Dow Jones index lost about 140 points, or 0.4% while the S&P 500 index ended flat and the tech-heavy NASDAQ Composite index gained 0.2%.

CPI inflation awaits further clues regarding rate cuts.​

This week, the focus will be on the latest U.S. inflation numbers, starting with Tuesday’s producer price index, the consumer price index on Wednesday, for more signals on the U.S. economy.

The PPI is expected to rise 0.2% month-over-month in July, which would mean a 2.3% year-over-year increase from 2.6% last month.

The underlying figure, which does not take into account the volatile food and energy components, will also increase 0.2% on a monthly basis, down from 0.4% in June, with an annual rise of 2.7% down from 3.0%.

Investors will be looking to the data to make a determination on what the Federal Reserve will do at its meeting next month.

Traders are currently torn between a 25 basis point cut and a 50 basis point cut, and any signs of cooling inflation could add weight to the possibility of a much larger cut.

At the end of last month, the Federal Reserve kept the policy rate in the same 5.25%-5.50% range it has been in for more than a year, although it stressed that a rate cut could be triggered in September if inflation continues to show signs of cooling.

According to UBS analysts, fears of an imminent economic recession appear to be exaggerated.

The analysts’ report notes that, despite recent market volatility and increased concerns about a possible recession, fundamentals remain sound.

Analysts also expect the Fed to cut rates by 100 basis points over the remainder of the year, double its previous forecast, as it seeks to protect the labor market. However, recession risks appear to be exaggerated in the analysts’ view, as household finances remain on solid footing.

Retailer results due out this week​

Although the second-quarter earnings season is mostly over, this week will bring results from major retailers Home Depot (HD) and Walmart (WMT).

Both will give further signals on the strength of consumer spending, which in turn influences estimates of inflation and the economy.

The strength of consumer spending has become the mainstay of inflation in the U.S. this 2024, despite pressure from high interest rates.

Crude oil breaks its upward streak​

Oil prices fell on Tuesday, ending a five-day winning streak in the green, as traders took profits amid fears over demand growth this year.

The Organization of the Petroleum Exporting Countries on Monday cut its global demand forecast for 2024, the first cut since it did so in July 2023, and comes after growing signs that demand in China has fallen short of estimates.

 

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U.S. Wholesale Inflation Moderated in July, Sign of Easing Price Pressures
U.S. wholesale price increases slowed in July, indicating that inflationary pressures are moderating as the Federal Reserve (Fed) moves closer to potentially cutting interest rates, expected early next month. The Labor Department reported Tuesday that its Producer Price Index (PPI), which tracks inflation before it reaches consumers, rose 0.1% from June to July and 2.2% from a year ago.

Excluding food and energy prices, which tend to fluctuate month to month, so-called core wholesale prices were unchanged from June and up 2.4% from July 2023. The increases were more moderate than expected and are roughly consistent with the Federal Reserve’s 2% inflation target. The Producer Price Index can provide an early signal of the direction consumer inflation will take.

Economists also follow it closely because some of its components, particularly health care and financial services, are included in the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge.

Upcoming Release of Consumer Prices​

The Labor Department will release the Consumer Price Index (CPI), the primary measure of inflation, on Wednesday. Forecasters estimate that consumer prices rose 0.2% from June to July, after falling 0.1% the previous month, and 3% from July 2023, according to a survey by data firm FactSet.

Inflation has decreased significantly since reaching a four-decade high in mid-2022. However, as Americans prepare to vote in the November presidential election, many remain dissatisfied with consumer prices, which are about 19% higher than before the inflationary spike began in the spring of 2021. Many have blamed President Joe Biden, although it remains unclear whether Vice President Kamala Harris, a presidential hopeful, will also face accountability.

The Federal Reserve May Soon Lower Interest Rates​

The Fed, in its fight against high inflation, raised its benchmark interest rate 11 times in 2022 and 2023, bringing it to its highest level in 23 years. Year-over-year consumer price inflation has fallen from 9.1% in June 2022 to 3% as of the latest report. The much weaker-than-expected July U.S. employment report reaffirmed the general expectation that Fed policymakers may begin cutting rates when they meet in mid-September to support the economy. The employment report indicated that the unemployment rate rose for the fourth straight month to 4.3%, still good by historical standards, but the highest level since October 2021.

Over time, a series of rate cuts by the Fed would likely lead to lower borrowing costs across the economy—for mortgages, auto loans, credit card loans, and commercial loans—and could also stimulate stock prices.

 

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Dollar awaits CPI; Pound falls
The U.S. dollar was able to stabilize on Wednesday, thanks to the previous night’s weakness ahead of the release of the July consumer price index, while the British pound weakened on the back of benign inflation data.

Dollar slides on CPI expectations​

The U.S. dollar retreated on Tuesday after the producer price index for July came in below expectations, prompting traders to shift bets slightly towards a 50 basis point cut in September.

The PPI reading raised hopes that the consumer price index inflation reading, to be released later today (Wednesday), will also indicate that inflation remained benign during July, giving the Fed a little more room to initiate rate cuts.

Analysts point out that they have been bearish on the dollar in recent days and generally optimistic about anything to do with stabilizing confidence, and a benign U.S. CPI data, according to analysts’ view, could clear the way for more dollar trading quite possibly until the underlying PCE data is known next August 30 and the September 6 employment numbers.

By the end of July, the Federal Reserve kept the official interest rate at 5.25% to 5.50%, as it has done for more than a year, although it indicated that it might cut it by September if inflation continued to cool.

Pound falls on UK inflation release​

In Europe, the GBP/USD lost about 0.2% to 1.2837 after UK consumer price inflation rose less than expected in July, increasing the chances that the Bank of England will cut interest rates again.

The annual rate of consumer price inflation threatened to rise to 2.2% after two months at the Bank’s 2% target, although it was below the 2.3% estimate.

The Bank of England cut interest rates from 5.25%, its highest level in 16 years, earlier this month, and financial markets are now pricing in a 44% chance that the BoE will cut rates by a quarter point by September, down from 36% prior to the data release.

EUR/USD rose nearly 0.3% to 1.1019, reaching levels not seen before this year, after France’s EU-harmonized year-on-year inflation rose to 2.7% in July from 2.5% in the year to June.

The European Central Bank began cutting interest rates in June, and most expect policymakers to agree to another reduction in September, although rising inflation would make this unlikely.

New Zealand dollar loses ground after rate cut​

In Oceania, NZD/USD fell nearly 1% to levels of 0.6014 after the Reserve Bank of New Zealand cut interest rates by 25 basis points and Governor Adrian Orr reported that the bank had also considered a 50 basis point reduction.

The RBNZ highlighted the progress made towards inflation achieving its annual target of between 1% and 3%, as well as noting market expectations that interest rates will fall by 100 basis points by mid-2025.

In Asia, USD/JPY was up nearly 0.2% to 147.15 showing signs of stability after strong overnight gains, although further strength in the yen was capped by improved risk appetite.

Second-quarter gross domestic product data from Japan will be released on Thursday, which is likely to influence the Bank of Japan’s rate-cutting plans.

USD/CNY lost about 0.1% to 7.1470 and industrial production data along with retail sales are due for release this week.

 

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U.S. Inflation Rose Less Than Expected in July, CPI Increased by 2.9% Annually
U.S. consumer prices increased in July at a slower-than-expected annual rate, raising the likelihood that the Federal Reserve will begin to cut interest rates at its next scheduled meeting in September.

The Labor Department’s consumer price index (CPI) rose by about 2.9% last month, slowing slightly from 3.0% in June. Economists had estimated that the figure would most likely match June’s rate.

On a month-on-month basis, the reading increased by 0.2% after falling by 0.1% in the previous month, matching estimates.

Excluding more volatile items such as food and gasoline, the core CPI rose by 3.2% in the twelve months to July, below estimates of 3.3%. On a monthly basis, core price growth increased by 0.2% after rising by 0.1% in June.

This release followed the cooler-than-expected July producer price index, which serves to confirm potentially benign inflation pressures that could give the Fed a chance to cut its interest rate from the 5.25%-5.50% range it has maintained for more than a year.

Fed Chairman Jerome Powell has stressed that positive inflation data is vital for a rate cut in September.

In addition, the non-farm payrolls report earlier this month indicated that U.S. employment growth slowed more than expected in July, while the unemployment rate increased to 4.3%, which could increase fears that the labor market is deteriorating, making the economy highly vulnerable to a recession.

 

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U.S. Stock Markets Rise on Positive CPI Data
U.S. stocks rose on Wednesday as investors digested the latest consumer inflation data amid expectations that the Federal Reserve will ease its monetary policy stance next month.

CPI Data Expected to Support Rate Cut Expectations​

U.S. consumer prices rose less than estimated on an annual basis in July, with the consumer price index increasing by 2.9%, slightly slowing from June’s 3.0%. Market analysts had expected the figure to remain at the June rate.

On a month-to-month basis, the reading rose by 0.2% after falling by 0.1% in the previous month, which matched estimates.

Excluding more volatile items such as food and gasoline, the core figure rose by 3.2% in the twelve months to July, slightly below estimates of 3.3%. On a monthly basis, core price growth increased by 0.2% after a 0.1% rise in June.

Although this release confirmed generally benign inflation pressures, following Tuesday’s cooler-than-expected July producer price index, expectations for a more substantial rate cut have increased.

The Federal Reserve is expected to officially cut its interest rate in September from the 5.25%-5.50% range it has maintained for more than a year, although uncertainty remains regarding the size of the reduction.

Traders are currently divided between expecting a 25 to 50 basis point cut in September, according to CME’s FedWatch tool.

Intel Sells Its Shares in Arm​

In the corporate sector, Intel (INTC) sold its 1.18 million-share stake in U.K. chip firm Arm Holdings (ARM) in the second quarter, according to a regulatory filing released Tuesday.

The chipmaker mentioned earlier this month that it would cut more than 15% of its workforce and suspend its dividend amid a pullback in spending on traditional data center semiconductors and a shift toward AI chips.

Chocolate maker Mars Inc. wants to pay $83.50 per share for packaged food producer Kellanova (NYSE
), representing a 12% premium over Tuesday’s close and valuing the company at more than $30 billion, according to The Wall Street Journal.

Oil Prices Rise After U.S. Inventory Drawdown​

Oil prices rose on Wednesday, supported by industry data that indicated a larger-than-expected drawdown in U.S. inventories.

Data from the American Petroleum Institute showed that U.S. crude inventories fell by 5.2 million barrels in the week ended August 10, much more than the estimate of a near 2 million barrel drawdown.

If confirmed by official inventory data later in the week, this reading suggests that demand continues to be strong in the world’s largest fuel consumer, even as the generally travel-heavy summer season begins to wind down.

 

[OnEquity]

U.S. Inflation Slows in July to 2.9%, Bitcoin Dips Below $61,000
U.S. inflation showed signs of slowing in July, aligning with economists’ estimates and paving the way for a possible interest rate cut.

The U.S. Consumer Price Index (CPI), a widely analyzed measure tracking the cost of a broad basket of goods and services, increased slightly by 0.2% month-over-month in July, leaving the 12-month inflation rate at 2.9%, according to a report released Wednesday by the Labor Department’s Bureau of Labor Statistics.

These results were in line with forecasts from economists surveyed by Dow Jones, which had predicted readings of 0.2% for the month and 3% for the year, according to CNBC. The annual reading, slightly below estimates and down from June’s 3%, is the lowest since March 2021.

The core CPI, which excludes food and energy costs, also showed a modest increase of 0.2% in July, matching expectations and slightly above the 0.1% increase from the previous month. The year-over-year core CPI was 3.2%, in line with estimates and slightly lower than June’s 3.3%.

Inflation data has been moving progressively closer to the Fed’s 2% annual target. The latest reading supports the narrative for an upcoming interest rate cut in September, as investors anticipate.

Fed officials have signaled their willingness to ease rates, though they have not committed to a specific timeline or speculated on the pace of the cuts.

The Fed raised interest rates rapidly to combat inflation, which reached multi-decade highs in 2022 after the COVID-19 pandemic, and has not cut rates since. Rates have remained at a 23-year high within the 5.25% – 5.5% range for over a year.

Bitcoin Slides Below USD $61,000​

The cryptocurrency market did not respond positively to the inflation news, as Bitcoin slipped below USD $61,000 after the report’s release. This downturn was mirrored by other major cryptocurrencies, which are currently showing declines of nearly 1% over the last hour.

In contrast, gold surged to $2,474.04 an ounce in Wednesday morning trading, approaching record highs, as reported by Reuters.

Earlier in the week, Bitcoin experienced its fastest pace of decline in several years, plunging to the USD $49,000 area amid concerns about a slowing U.S. labor market and fears of an economic recession. The situation was further exacerbated by tensions in the Middle East and a rate hike announced by the Bank of Japan.

The digital asset market has shown signs of recovery from last week’s downturn, although volatility persists. Bitcoin is hovering around USD $60,900 at the time of publication, up 3.3% in the last few hours and 6.3% for the week, according to CoinMarketCap data.