Inline US CPI sees mixed stocks and dollar steady

Headlines

* US annual inflation eases ahead of Fed’s Autumn window

* Bond traders trim bets on Fed rate cuts on CPI data

* GBP/USD finds resistance again at 1.2865 after easing UK CPI figures

* Gold dips 0.75% as large rate cut hopes dim

FX: USD recovered its losses after falling to an intraday low at 102.27 after the inflation data. We’ve now had three straight core m/m prints below 0.17% with the three-month annualised at 1.6%. One point of disappointment was rising rents which were thought to be ticking lower. Chances of a 50bps rate cut fell to 35% from double that one week ago and around 53% before the figures.  

EUR popped up to 1.1047, a seven-month high, before paring gains, though it still closed above 1.10. Rate differentials are in favour of the euro as the Fed is currently seen cutting more than the ECB, which has a sticky inflation problem, even as data deteriorates. The 200-week SM sits at 1.1066.

GBP dipped on softer than expected CPI data. The headline rose 2.2%, lower than the forecast 2.3% and core prices printed at 3.3%, one-tenth less than expectations. Key services inflation also came in lower than estimates at 5.2%. but there was a lot of noise around this figure with the reversal of the sharp Taylor Swift increase on hotel costs in June. There’s still around 50bps of easing for this year and just less than a 50% chance of a 25bps September rate cut. That’s not too different from the start of the week.

USD/JPY hovered again under 148 in what looks like bearish consolidation. Support around 146 and then 145.42 needs to be broken for more downside. Initial resistance is Monday’s top at 148.22.

AUD turned lower after it touched the 50-day SMA at 0.6636 and returned to its 100-day and 200-day SMAs around 0.66. Iron ore slid so not helping the aussie. NZD underperformed falling 1.33% and back below 0.60. The RBNZ cut rates and surprised with discussion about a bigger 50bps move. USD/CAD steadied at the 100-day SMA and Fib level at 1.3694/91.

US Stocks: US markets were mixed with CPI not really following the soft PPI data and markets taking off bigger rate cut bets. The benchmark S&P 500 closed up 0.38% at 5,455. The tech-dominated Nasdaq 100 finished higher by 0.09% at 19,023. The Dow Jones settled 0.61% up at 40,008. Only three sectors were in the red with communication services, consumer discretionary and materials underperforming. Google finished 2.3% lower on continued antitrust fears.

Asian stock futures are mixed. Asian stocks were partially buoyed by Wall Street after the weaker PPI data. The ASX 200 moved higher after a slew of earnings including from the index heavyweight CBA. The Nikkei 225 wiped out initial gains after PM Kishida announced his plans to step down next month. The Hang Seng and Shanghai Composite were muted while traders digested softer loans data. Tencent’s Q2 revenue rose on gaming business recovery.

Gold fell back again after posting a high at $2479. Treasury yields were relatively quiet with the 10-year printing small doji candle and the dollar little changed.

Day ahead highlight – AU Jobs, China data and US Retail Sales

The Australia economy is forecast to add 12.5k jobs, down from the 50.2k added in June. Unemployment is seen unchanged at 4.1%. Despite the robust job growth, there are signs of slack in the labour market. The RBA stuck to its relatively hawkish tone at its meeting last week. Governor Bullock reiterated this a few days later saying she wouldn’t hesitate to raise rates if needed.

The China data dump should give us a decent gauge on the health of the ecoonmy. Retail sales are expected to remain at 2%, industrial production a tenth lower at 5.2% and fixed asset investment at 3.9%. Property concerns are holding back the consumer, though manufacturing is benefitting from hi-tech demand. Using PMI data as a proxy, the Caixin manufacturing hit the lowest level since October. Insufficient domestic demand and weak market optimism may plague today’s data.

Headline US retail sales are seen rising 0.3% in July and the control group 0.1% m/m. The latter feeds directly into the GDP calculation and is seen to historically better track broader consumer spending  The job market is showing signs of cooling while household financial stress is rising as more credit cards and auto loans fall late.

Chart of the Day – Gold fails again

Bullion has been relatively uneventful in the grand scheme of summer markets. Yields have been falling and the dollar has struggled. Typcially this should be a boon for gold bugs. The yellow metal is a non-yielding asset and a weak greenback means stronger demand as more gold can be pruchased by foreign buyers. The Middle East tensions are lingering, though they may be cooling off now. China has slowed its buying as it becomes more price sensitive.

Strong resistance is obvious at the record high from mid-July at $2483. Prices have tested this on a few occassions intraday without any break through. There is a long-term upward trendline above here reinforcing this area. Previous all-time highs sit at $2450 and $2431.