US inflation was at the forefront of attention on Thursday, with major assets trading mixed ahead of the report and then taking their cues from the report during the US session.
How did the markets behave yesterday?
Our headlines and charts:
headlines:
- The Melbourne Institute’s inflation forecast has been cut from 4.4% y/y to 4.3% y/y in July.
- Germany’s final consumer price index for July was steady at 0.1% on a monthly basis, as expected.
- UK GDP May: 0.4% m/m (0.2% expected, 0.0% previously); 3-month real GDP average grew by 0.9%, fastest rate since January 2022
- UK Industrial Production May: 0.2% m/m (0.3% expected, -0.9% previously); Manufacturing output improves from -1.6% m/m to 0.4% as expected
- The UK’s National Institute of Economic and Social Research expects GDP to slow from 0.7% quarter-on-quarter in the first quarter to 0.6% quarter-on-quarter in the second quarter and then to 0.4% in the third quarter.
- US CPI June: -0.1% MoM (0.1% Expected, 0.0% Previous); Core CPI down from 0.2% to 0.1%; YoY slowed from 3.3% to 3.0% (3.1% Expected)
- Initial jobless claims in the United States fell from 239,000 to 222,000 (236,000 expected) in the week ending July 6.
- Federal Open Market Committee member Mary Daly said “policy adjustments will be necessary” in the wake of the U.S. CPI report, but the timing “remains unclear.”
- The U.S. federal budget deficit fell from $347.1 billion to $66.0 billion (forecast at $71.2 billion) in June.
- New Zealand’s manufacturing index fell from 46.6 to 41.1 in June, its lowest level since August 2021
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
Volatility was relatively high during the early Asian and European sessions as traders awaited closely watched US inflation updates.
Bitcoin (BTC/USD) price saw more volatility, dropping to $57,090 before rallying to the $58,500 area by the US session.
U.S. crude oil prices were also volatile. It rose to $82.80 early in the day after the U.S. Energy Information Administration’s crude oil inventory report on Wednesday, then fell to $81.75 ahead of the U.S. CPI. It ended the day comfortably above $83.00 on soft U.S. inflation and reports of stronger summer demand.
Spot gold and 10-year Treasury yields took their cues from the cooler-than-expected U.S. CPI report. Gold, a popular proxy for the U.S. dollar, jumped to $2,425 before settling at $2,415, while 10-year Treasury yields fell to 4.168% before retreating to 4.210% by the end of the day.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The US dollar started today by extending the marginal declines recorded since Wednesday’s session in the US. Prices fell and then ranged during the early London session as the absence of market drivers and caution ahead of the US CPI encouraged profit taking.
The US dollar fell broadly as the US reported more muted inflation pressures in June. The report not only helped increase the odds of a September interest rate cut but also encouraged speculation that the Federal Reserve could cut rates several times before the end of the year.
But soon the dollar bulls stepped in, lifting the greenback off its intraday lows. Aside from hedging flows, traders may have bought the safe haven as U.S. stocks fell. Some also pointed to leaked information about a possible Bank of Japan currency intervention, which encouraged buying of the U.S. dollar.
The US dollar ended the day higher than its post-CPI lows, but remained in the red against its major peers. The greenback suffered the biggest losses against the yen and European currencies, but also ended the day higher against the Canadian dollar.
Potential catalysts coming up on the economic calendar:
- Japan revises industrial production at 4:30 am GMT
- German Wholesale Price Index at 6:00 am GMT
- France Final CPI at 6:45 AM GMT
- Canada Building Permits 12:30 PM GMT
- US PPI report at 12:30 PM GMT
- University of Michigan preliminary report on US consumer sentiment and inflation expectations at 2:00 PM GMT
We may see another opportunity for increased volatility as Uncle Sam prints June producer price data and a preliminary survey of consumer confidence and inflation expectations for July.
Signs of easing price pressures and improving consumer sentiment should support a rate hike by the Fed, so make sure you stay glued to the TV as the reports roll in!
