All prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Brent and Crude October futures down close to one percent at 95.60 and 88.80 respectively. Yesterday saw oil spike on the back of reports that Russian oil supplies to Eastern Europe had been halted in the southern leg of the Druzhba pipeline due to sanctioned transit fees. The spike was a reminder at how brittle the intertwined relationship between Russia and Europe regarding energy sources is. The rally was short lived and price reverted awaiting today’s big number. US/Iran talks still ongoing so beware of any wild card headlines.
EQ - Equity markets in Asia weaker lead by a more than two percent drop in the Hang Seng to 19,461 lead by a sell off in the tech sector. The Nikkei and Kospi also lower but less extreme at 27,810 and 324 respectively.
The Nasdaq and S&P steady at 12,991 and 4118 respectively after yesterday’s sell off on the back of lower guidance out of the semiconductor sector.
Gold - Gold futures down smalls on the session at 1804. Gold has remained above our 1800 trading pivot but its destiny for now lies in the hands of the CPI print. One thing of note Goldmans have revised lower their estimates for gold on the back of “the interplay of real rates and US growth risks”. Their 3,6 and12m projections are now 1850, 1950 and 1950 down from 2100, 2300 and 2500 respectively for what it’s worth.
FI - US yields off a touch overnight with the US2y and 10y yields currently trading at 3.27% and 2.81% respectively. The US2y10y yields continue to bear flatten and push for the 50bp target.
European yields rose yesterday with the German and Italian 10y yields closing at 0.923 and 3.058 respectively and once again widening above the 200bp level.
FX - The USD flat overnight with the USD Index flat at 106.35 as we await the data. The majors all steady versus the USD with the JPY, EUR and GBP trading at 135.05, 1.0210 and 1.2072 respectively.
Others - Bitcoin and Ethereum having rejected the 24,000 and 1800 levels they are looking to the downside of the recent ranges with our old friend the Asian down candle back in play. Currently we are trading at 22,900 and 1678 respectively. Remember the Goerli test in Ethereum is this week so look out for any headlines concerning its progress but other than that its all eyes on CPI.
Are we nearly there yet….thankfully we are as these last two days have felt more like a fortnight.
So now that we are almost there what can we expect. Core CPI is expected to show a further MoM rise of 0.5% with the YoY rising again to 6.1% so whilst the MoM is slowing the YoY measure shows a further increase. For headline the expectations are for a more muted 0.2% MoM increase due to lower gasoline and energy costs with the YoY showing a decline to 8.7%. If this is the case then there will be some muted chatter around a peaking of inflation but the Fed has consistently said that they would like to see a prolonged period of lower MoM prints in order to establish that the decline in inflation is sustainable before any thoughts of giving up the fight.
As the Fed have highlighted on numerous occasions the MoM reading let’s use that as a gauge as to how we think the Fed and hence the market will react to today’s print. As we said expectations are for a 0.2% MoM print for the headline measure. The range of expectations is between 0/0.4%. As we spoke about last week, with regard to payrolls, the market tends to lowball the CPI estimate so we lean towards a higher than expected print. Anyway the status quo, in terms of price action, for the market we think is a print between 0.1% and 0.3% whereby it will be more of a considered deep dive into the component parts of the report to see the exact sectors which are responsible for the print and whether inflation is embedded.
A print at 0.1% or below would get the tongues wagging that a “peak” is in, 75bp September hike would be priced out back to 50bp and the only thing holding the Fed back from a pivot would seemingly be the hot employment sector. Stocks would be happy to push higher and the USD would sell off.
In contrast a 0.4% or higher print would get 75bps for September fully priced in with US2/10s inverting further, stocks selling off and the USD bid.
Remember too later in the day we have two Fed speakers (both with a dovish tilt) who will have time to digest the print and give their views on proceedings.
Monitor our live feed of articles on US CPI here, aggregating commentary and research from a wide range of sources.
A few data prints to catch up on. Yesterday saw US worker productivity in q2 declined at its steepest pace ever whilst at the same time unit labour costs increased suggesting further inflationary pressure coming from wage growth. Smells like stagflation?
China CPI came in at 2.7% YoY for July a two year high but lower than expectations. The higher print was down in the main to higher pork prices. Finally the German final print for July inflation came in as expected at 0.9% MoM.
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US CPI YoY Jul consensus 6.1% vs previous 5.9% (13.30 BST)
US Inflation Rate YoY Jul consensus 8.7% vs previous 9.1% (13.30 BST)
Evans (18.00 BST)
Kashkari (19.00 BST)
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Your analysis of CPI preview was outstanding
Great early morning view of what’s happening in the market’s