✅ Daily Market Analysis - MONDAY AUGUST 14, 2023

Key News:

USA - Consumer Inflation Expectations

At the end of the week, the Dow wrapped up with a slight increase, achieving a modest upward movement over the course of the week. However, the potential for further upward momentum was curtailed by resurgent concerns surrounding inflation, which triggered a rise in Treasury yields. These apprehensions about inflation also tempered investor anticipations of the Federal Reserve's intentions to hold off on implementing interest rate hikes later in the year.

The Dow Jones Industrial Average displayed a 0.3% climb, equating to a 105-point upswing. In contrast, the Nasdaq encountered a decline of 0.6%, while the S&P 500 observed a marginal dip of 0.1%.

NASDAQ indices daily chart

SPX indices daily chart

Monday witnessed a simultaneous dip in both gold and copper prices, marking their lowest levels in a month. This downward trajectory was primarily ascribed to the sway of a fortified dollar, propelled by mounting anxieties surrounding heightened US inflation. This inflationary unease, in turn, magnified worries about the prospects of an escalation in interest rates.

XAU/USD daily chart

The spotlight of the preceding week remained firmly fixed on the unveiling of US inflation data. As disclosed by the Bureau of Labor Statistics (BLS) on Thursday, the headline consumer price inflation (CPI) unveiled a more subdued ascent of 3.2% over the twelve-month span concluding in July. This reading modestly fell short of the projected 3.3%, albeit registering an upturn from the prior 3.0%. This progression follows a year-long trend of diminishing price escalations after surging to a zenith of 9.1%.

Simultaneously, the core US inflation for the corresponding period experienced a softening to 4.7%, thereby undershooting the anticipated 4.8%. This retreat brought the levels back in line with those observed in the latter part of 2021. Furthermore, when observed on a month-over-month (MoM) basis, the CPI metrics for both the headline and core categories during July mirrored those of June, each marking an advancement of 0.2%, in alignment with expectations.

In conjunction with the consumer price inflation gauges, the United States bore witness to a marginal uptick in weekly unemployment filings on Thursday, surpassing a 20,000 threshold to reach a tally of 248,000.

US Producer Price Index (PPI)

Subsequently, Friday ushered in the latest installment of the Producer Price Index (PPI) inflation figures, which laid bare year-over-year (YoY) and month-over-month (MoM) increments for July that surpassed expectations. This marked a noteworthy departure from the preceding year's trend of dwindling wholesale prices. YoY PPI headline inflation surged by a significant 0.8%, displaying a notable leap from June's upwardly revised 0.2%, and marginally surpassing the median projection of 0.7%. Transitioning from June to July, headline PPI prices ascended by a pronounced 0.3%, representing a substantial surge from the preceding 0.0%, and just edging past the expected 0.2%. This surge underscored the most substantial month-on-month escalation witnessed since the inception of the year. The Bureau of Labor Statistics (BLS) ascribed this widespread surge chiefly to an ascent in service costs, which witnessed a 0.5% increase, signifying the most rapid recovery in nearly a year.

Curiously, the ascent in PPI inflation, as well as headline CPI, exhibited a partial deviation from the University of Michigan's (UoM) release of consumer inflation expectations on the same Friday. This report pointed towards a decline in August, settling at 3.3%, as opposed to July's 3.4%.

Looking forward, the horizon for significant events in the United States over the ensuing week encompasses the unveiling of retail sales data for July and the Empire State manufacturing index for August. A scenario featuring figures weaker than initially projected could amplify the narrative of a measured economic deceleration. Subsequently, attention will pivot towards the release of minutes from the Federal Open Market Committee (FOMC) meeting, slated for Wednesday. Should these minutes allude to a leaning among Fed officials towards a temporary halt in rate hikes for either September or November, it could exert downward pressure on the dollar, thereby lending support to equities and bonds. At present, the implied rate trajectory for the forthcoming rate decision on September 20th suggests a compelling 90% likelihood that the Fed will maintain the existing target range of 5.25%-5.50%.

Effective Federal Funds Rate

Turning our gaze across the Atlantic, the upcoming week will be punctuated by a keen focus on the UK inflation data slated for release on Wednesday. Anticipation is rife as market consensus leans toward a potential easing in year-on-year consumer price inflation, expected to subside to 7.4% from June's 7.9%. Meanwhile, core inflation for the same period is projected to display greater resilience, hovering at 6.8%. On a month-on-month basis, economists envisage a status quo with both headline and core inflation holding steady from June to July, each ascending by a modest 0.1% and 0.2% respectively.

The prevailing market sentiment currently places a 70% likelihood on the Bank of England (BoE) orchestrating another 25 basis point hike in the Official Bank Rate during the forthcoming meeting scheduled for September 21st. The forward-looking projection envisions a terminal rate of 5.75% by March 2024. Should the week's inflation data unveil a softer stance, there's a possibility that rate forecasts could witness a downtick, potentially exerting pressure on the British pound. Conversely, a revelation of positive surprises within the data could invoke the inverse effect. In addition, it is imperative to remain attuned to other consequential UK data releases throughout the week, encompassing employment and wage metrics for June on Tuesday, and retail sales data for July on Friday.

Across the week's expanse, the spotlight extends to the Reserve Bank of Australia (RBA), as the latest meeting minutes are slated for release on Tuesday. Concurrently, the quarterly Australian wage price index will make its entrance. Notably, all eyes will pivot towards the Reserve Bank of New Zealand (RBNZ) on Wednesday. In harmony with economists' consensus, it appears that the central bank may have brought its tightening cycle to a conclusion, shaping a focal point for market participants to decipher.