MORNING OVERVIEW
The US CPI rates for August are set to be released during today’s American session. The US CPI rates will be the last inflation metric prior to the Fed’s meeting next week. On another note, the ECB decided to hike rates by 25bp as it was widely expected yesterday.
The objective: Key focus on the US CPI rates as they are the last inflation metric prior to the Fed’s decision next week.
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| S&P 500 | 7620 | +0.38% | US CPI rates in focus |
| DXY | 99.06 | +0.01% | US CPI rates in focus |
| EUR/USD | 1.1607 | -0.04% | US CPI rates in focus |
| Gold | 4344 | +0.62% | Geopolitical tensions |
| Brent Crude | 101.034 | -1.40% | Geopolitical tensions |
KEY MARKET THEMES
01 — US CPI rates
The Core CPI rate on a year-on-year level is expected to showcase signs of easing inflationary pressures in the US economy. Specifically, the Core CPI rate is expected to come in at 2.4%, which would be lower than the prior rate of 2.5%. However, we should note that the headline CPI rate is expected to remain steady at 3.4% In turn, this could possibly weigh on the dollar as the Fed in its next meeting, may have some leeway to adopt a softer tone when discussing their next possible steps.
Market implication (USD) : BEARISH
02 — Brent holds above $100 per barrel
The narrative surrounding the oil market continues to take our number two spot today. According to media outlets, Yemen’s Houthi rebels allegedly seized the key Red Sea port of Mokha, which could make it easier for the rebels to target ships transiting the Bab el-mandeb strait which acts as a crucial waterway for Saudi Arabian oil exports. In turn, as the risks to the global oil supply continue to rise, oil prices may find some support.
Market implication (OIL): Bullish
03 — UK GDP rates come in better than expected
The UK’s GDP rates for July were released earlier on today. The GDP rates across all counts came in better than expected, implying a wider expansion of the UK economy than what was expected. In turn the better than expected GDP rates could provide support for the sterling during today’s trading session
Market implication (GBP) : Bullish
WHAT MATTERS TODAY
US Core CPI rate
Time (GMT+2): 15:30
Expected: 2.4%
Previous: 2.5%
Potential market reaction:
Easing inflationary pressures could weigh on the dollar.
US Headline CPI rate
Time (GMT+2): 15:30
Expected: 3.4%
Previous: 3.4%
Potential market reaction:
Any rate higher than 3.4% could aid the dollar and vice versa.
ASSET FOCUS
[GOLD / COMMODITIES]
Gold appears to be moving in a sideways fashion although its currently resting on our adjusted S1 support level at 4320.
KEY LEVELS
- Resistance (R1): 4520
- Resistance (R2): 4695
- Support (S1): 4320
- Support (S2): 4180
Technical View: NEUTRAL
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| Equities | Neutral | US CPI rates |
| USD | Neutral | US CPI rates |
| Gold | Neutral | Geopolitical tensions |
| Oil | Bullish | Houthi rebels |
RISKS TO THE VIEW
The biggest risk to our view is the US CPI rates come in hotter than expected
A hotter than expected inflation print could upend our views as it could lead to a more hawkish Fed in the coming week.
TRADING SPHERE VIEW
Bullish for oil prices
Our base case:
Continued disruptions to the global oil supply from the Middle East.
What would change our view:
A genuine attempt to de-escalate the situation between the US and Iran
TODAY’S WATCHLIST
01 US CPI rates
02 UoM consumer inflation expectations
