US Inflation YoY data came in at 3.3% and the MoM at 0.1%, both showing the Federal Reserve’s (FED) steadfast policies to lower inflation are finally coming in. Although the YoY PPI data of 2.6% was slightly higher than expected, the MoM data was steady, suggesting that price growth in the US is slowing. Although the inflation rate is still outside the target rate, the market has increased the odds of a September rate cut from 60% to 93%. Equity markets like this news, with traders maintaining a bid tone to already attained record levels. This week, Retail Sales and Industrial Production numbers will be key to how the economy handles the tight monetary policy. Furthermore, we are amidst quarterly reporting season in the US, which, if numbers continue to show a better tone, could help sentiment. The only news outside that could cause an issue is any negative fallout of Biden’s gaffes, running for re-election and if a replacement is needed. Positive sentiment outside the US may come from a series of economic prints from China. Today, we get a GDP growth forecast of 5%, Retail Sales of 3.2%, and Industrial production of 5.3%; the consensus for all this data is softer; however, we could be surprised. In Australia, we have important employment data and RBA Bulletin. The RBA Bullocks remains focused on the data and on the fence as to whether rates will ease later this year or not.
But first, let's dive deeper into the recent inflation numbers in the US and what this means to interest rates. The recent inflation data indicates a positive trend, but the journey towards the FED’s target range is ongoing. The YoY inflation rate at 3.3% shows a significant reduction from previous highs, suggesting that the aggressive rate hikes are beginning to cool the economy. The annual inflation rate in the US fell for a third straight month to 3% in June 2024, the lowest since June 2023, compared to 3.3% in May and below forecasts of 3.1%. Compared to May, the CPI unexpectedly declined 0.1%, the first fall since May 2020, following a flat reading and compared to expectations of a 0.1% rise. This was the fourth consecutive drop in a row.
However, the PPI data indicates that producer prices are still rising at a faster-than-expected pace, which could translate into consumer price increases if businesses pass on these costs. Producer prices in the United States increased 2.6% year-on-year in June 2024, the most since March 2023, accelerating from an upwardly revised 2.4% gain in May and above market expectations of 2.3%. This was the sixth consecutive monthly rise. This is a glimmer of hope that last month’s steady monthly read is showing signs that softening in PPI is starting. The MoM inflation data being steady is a positive sign, indicating that inflation is not accelerating. This stability is crucial as it provides the FED with some breathing room to assess the impact of their policies without needing to take immediate further action. The market's anticipation of a rate cut in September has significantly increased, reflecting confidence that inflation will continue to trend downwards. Although we support rates coming lower in 2025, this data is positive, and we feel September is an outside chance but prefer November. Combine this with some positive news on the corporate earnings front, and equities for the time being will remain elevated.
The quarterly reporting season is another critical period for the markets. Positive earnings reports can provide a significant boost to market sentiment, as they indicate that companies are performing well despite economic challenges. Conversely, weaker-than-expected earnings could dampen market enthusiasm and lead to a pullback in stock prices. Investors will be looking for signs of resilience in corporate America, especially in sectors that are sensitive to economic cycles. Last week proved a mixed bag for the banking sector. JPMorgan declined about 0.8% and Citigroup lost 2.9% despite a revenue and earnings beat. Wells Fargo sank 7% after dimmed its outlook for the year slightly. On the other hand, Bank of New York Mellon gained 4.2% after better-than-expected Q2 earnings and Citigroup added 2.7%. Traders wait to see what the next few announcements will be.
So far, the only wild card that we have to deal with is Joe Biden. The political landscape is a wildcard that could influence market dynamics. President Biden’s re-election campaign faces scrutiny, and any significant missteps could introduce uncertainty. Markets generally dislike uncertainty, making it harder to predict future policy directions. If Biden's campaign faces significant challenges, it could increase market volatility. Investors will need to keep a close eye on political developments as they could impact fiscal policies and economic strategies. The recent gaffe at NATO Summit suggests concern about the President’s ability to lead the Democrats into the elevation and then to govern the US if he wins.
In China, we have a series of economic performance indicators that are crucial for global markets. Today, several key indicators are expected, including a GDP growth forecast of 5%, Retail Sales of 3.2%, and Industrial Production of 5.3%. While the consensus for this data is softer, there is a possibility of a positive surprise. Strong economic data from China would be beneficial for global markets, as it would suggest that the world’s second-largest economy is performing well, which could help support global economic growth. This would be a positive sign for global economic growth, as China is a major consumer of commodities and a key player in global trade. Positive data from China could lift global market sentiment and support higher stock prices worldwide. Positive reads here and good sentiment from the Communist Party of China Third Plenum could help equities.
What can we expect this week? The earnings season will kick into high gear in the US with reports from companies like GS, BlackRock, UnitedHealth, BoA, Morgan Stanley, Charles Schwab, J&J, Netflix, and Amex. Additionally, speeches by several Fed officials, including Chair Powell, are highly anticipated for hints as to when rates will come down. Economic data releases we have outlined, but we also have export and import prices, building permits, and housing starts. China's Communist Party’s Third Plenum commences, which will help traders understand what’s next for stimulus for the economy. In Australia, investors will see a weaker employment number as a cause for the RBA to start easing rates.
On the position front, we reduced our … position in the S+P (new entry price …) and will continue to roll off the position as positive sentiment gains. Likewise, we are … at … in the ASX SPI; and getting close to triggering an exit strategy above …; we are still … USD/JPY at …, having added at … Some BOJ interventions have helped the P/L in this position. On a positive note, we have maintained the AUD/USD (US…) after adding … and AUS/CHF (…), which now shows a profit. The … position in wheat at … shows a small gain. Likewise, Gold (…) and Silver (…), both new positions are doing well.
Trade Focus:
Gold:
Fundamentals:
The yellow metal remains “better” bid despite inflation softening around the world. Bets of incoming interest rate cuts by the ECB, the BoE, and the PBoC, are reducing the opportunity …
Technical Analysis:
As Gold approaches the historic high of US…, the technical picture for the metal will initially give us the lead. Will it break the US… level and reject, thereby cementing a triple top, or sail through it to more record highs? The next 48 hours will be critical. The trend is …
Support …
Resistance …
Momentum …
