Summary:
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US CPI Y/Y: +1.8% vs +1.7% exp
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Gold pulls back from 6-year high above $1530
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Wall Street set to begin in the red
The start of the week has been dominated by risk-off moves as equities have pulled back as rising tensions in Hong Kong have weighed on risk sentiment. This has caused precious metals to surge as an already conducive environment for rallies in Gold and Silver has received another boost and the former earlier traded as high as $1535/oz - its highest level since 2013!
The start of this surge began in earnest back in June when the Fed decision paved the way for rate cuts, and since then markets have been expecting an increasingly accommodative monetary policy from the US central bank. Along these lines, inflation takes on a greater importance as the decision to cut is almost solely due to slowing growth rather than an attempt to boost price pressure. Therefore a rise in inflation would be an unwanted development for the Fed, but that’s what they’ve just got with the release of the latest figures.
US inflation picked up according to the latest CPI data, with the core reading still holding above the 2.0% Fed inflation target. Source: XTB Macrobond
For July CPI Y/Y rose to +1.8% vs +1.7% expected, up from 1.6% previously. The core measure also topped consensus forecasts with an ex food and energy reading unexpectedly rising to 2.2% Y/Y, against an expected unchanged reading of +2.1% Y/Y. While the Fed’s preferred gauge of inflation, the PCE Core, remains well below the 2.0% target the core CPI is above it and if this persists it could become a problem for the Fed. Looking more closely at the release the drop in wage growth could be seen to suggest that there’s a pullback due in inflation, with both the real average hourly (+1.3% Y/Y vs +1.5% Y/Y) and weekly earnings (+0.8% Y/Y vs +1.2% prior) figures dropping.
The S&P500 dropped back below the 2900 handle during Monday’s session and in doing so the market is also beneath Ichimoku cloud - a potential indication that the near term trend has turned lower. Source: xStation
