Hezbollah and Israel trade blows. Israel sent a volley of rockets into Lebanon, saying they had detected that Hezbollah was planning a large-scale attack on Israel. Likewise, Hezbollah retaliated with a similar volley, saying it was in response to the killing of Shukr, the Hezbollah Commander. The possibility of an escalation remains “real”, with Oil gapping higher on its open. Both parties have since stated that their operations are complete for now. Time will tell. The Jackson Hole Symposium came and went. Powel’s press conferences provided some valuable feedback concerning the timing of the next rate reduction. Suggesting to the market that inflation is on course to reach its targeted level and, given the revision to the weekly jobs data, that it was now time to adjust monetary policy. The USD is trading at a 13-month low on weaker yields, while gold continues trading at record highs above USD 2500, a sign that there is more in this rally. In Australia, this week, the monthly CPI data is released, a number that we help reveal if the RBA has the right policy mix. Many economists suggest it will show inflation being contained, which may give hope for a local rate reduction next Tuesday. 

But first, let’s take a look at what's happening in the Middle East. WTI crude oil futures rose to around $75.4 per barrel on Monday, rising for the third straight session; concerns over supply risks have driven the increase amid escalating fears of a broader conflict in the Middle East. Over the weekend, Israel and Hezbollah exchanged a barrage of missiles, with Hezbollah launching hundreds of rockets and drones against Israel in retaliation for the assassination of a Shukr, their military commander, in Beirut last month. In anticipation of the attacks, Israeli jets struck targets in Lebanon shortly beforehand. A regional war remains a possibility. However, it is interesting that both sides backed down after their operations. This seems to be the “play card” and is similar to the actions in April for military operations outside the conflict zone in Gaza to be handled. It’s a means to save face on both sides and scale down expectations so that a regional war doesn’t emerge. Meanwhile, in Cairo, peace and hostage talks continue to go ahead, with both Israel and Hamas sending delegates to what is hoped to end the conflict. Oil is trading back at US75.20, and with momentum indicators looking sharp, you get a sense that the trend will be for us for a while yet. More on the prospects for oil later in the report. 

Federal Reserve Chairman Jerome Powell, from the Jackson Hole Symposium, gave clear signals that the central bank would cut its interest rate in September. The Chairman noted that the US labour market is cooling quickly following on from the softer jobs report from July and the downward revision to payrolls last week.  The Bureau of Labor Statistics revised down its total tally of jobs created in the year through March by 818,000 as part of its preliminary annual benchmark review of payroll data. That suggests the economy added an average of 174,000 jobs per month during that period — below the previous 242,000 estimate. Every month that amounts to about 68,000 fewer jobs. It marks the largest downward revision since 2009 and seems to be a motivating force for Powell to loosen the reins on tight monetary policy. Business owners are urging the Fed to cut rates by 50bpt in September rather than the widely anticipated 25bpts. Financial heavyweight Nigel Green, CEO of deVere Group, a large financial services firm in the US, has urged the US Federal Reserve (Fed) to deliver a 50-point rate cut in September in a bid to avert recession. Albeit the Fed in its recent minutes showed that risks to the inflation forecast were still seen as tilted to the upside, albeit to a smaller degree than at the time of the previous meeting, and that there had been some further progress towards the committee’s 2% inflation objective however a weaker jobs was a truing point for interest rate decisions to be made sooner rather than later. 

Market speculators are now anticipating a 70% chance of a 25 basis points cut and a 30% chance of a 50 basis points cut by the Fed next month.

In Australia, this week, we see the Monthly CPI. The monthly CPI rose by 3.8% in the year to June 2024, down from a six-month high of 4% in May and in line with market expectations. Inflation had been picking up since January, but last month's numbers showed a pullback. The slowdown was mainly attributed to easing prices for transport (4.2% vs 4.9% in May), driven by a deceleration in automotive fuel costs (6.6% vs 9.3%). Additionally, inflation moderated for health (5.3% vs 6.1%), recreation and culture (0.6% vs 2%), and education (6.4% vs 7.8%). On the other hand, prices accelerated for housing (5.5% vs 5.2%), particularly for electricity (7.5% vs 6.5%), while inflation remained unchanged for food and non-alcoholic beverages (3.3%). The monthly CPI, excluding volatile items and travel, stood at 4% in June. Inflation remains outside the RBA’s target range of 2-3%, albeit the RBA Head Bullock says that the economic outlook for Australia remains uncertain and no decisions on interest rates have been made. It will all be a data-driven decision when it's made. 

What can we expect this week? Tonight, in the US, we see MoM Durable Goods orders. The last print was down …%; forecasts are for a turnaround number of …%. The four previous reads were all marginally positive, so a positive number will be welcomed. Later in the week, we will have housing data, followed by important PCE prices for both QoQ and MoM. Personal Consumption Expenditure is a key data point for the FED, and the MoM will be an important read for the Fed in determining the size of the cut in September. The forecast is for a slight gain.  

On the position front, we have scaled back positions across the board. We still have a core position in the AUD/USD and … in both the SPI and S/+P. We remain … wheat and have just entered a … period in Crude.

Trade Focus:

Oil

Fundamentals:

It's worthwhile mentioning Oil in the wake of escalating tensions in the Middle East. Opening trade saw the commodity elevated, but press releases from both sides indicated that current operations have ceased seeing earlier gains tarnished. We still suspect that trading will be … and expect …

Technical Analysis:

Technically, the picture looks more … than the fundamental view. As can be seen from the chart below, the commodity is working its way into an ascending triangle. This usually suggests that a breakout to the topside is imminent. It’s a … and … that has been in play since Dec 23. The fact that we bounced off support at US… suggests …

Support              …

Resistance         …

Momentum        …