12th August - All Eyes On CPI
Yesterday was a quiet day in almost all markets. Oil continued to rise, but at a slower pace than Monday, with Brent now at $91.80 and US Oil now at $82.50. We heard the normal bluster from both Iran and the USA, with both sides saying they were in control and that the other side needed to give something up. We did hear from Pakistan's Defense Minister Khawaja Asif, who told Bloomberg that "things are shaping up again in favor of a peace arrangement or a deal," once again leaving the market with competing narratives to work through on the same day.
Outside of the Middle East, markets were focused on today's CPI print and so moved very little. Today's print will be crucial to how we expect the FOMC's next meeting to play out. Markets are waiting to see what the Fed will have to deal with before investing capital into the markets.
Forex
The USD did very little yesterday, with the DXY moving 0.01% overall on the day. The upcoming CPI print will move the USD significantly on an unexpected number, though as mentioned yesterday, there does seem to be some asymmetric risk going into the event. A dovish number would push the USD down as expectations for a rate cut rise, while the fears of stagflation grow with a hot number, and so demand for the USD will not be where it could have been otherwise. I would still expect the USD to rise on a hot print, but not to the same magnitude as the inverse. Something to watch out for.
The CAD continued to perform well on the back of rising oil prices, once again gaining ground on the USD yesterday to move to 1.3904 as of this morning. If we continue to see an impasse with the Strait of Hormuz, this will only continue to help the CAD moving forward. The AUD and NZD did not show particular conviction either way, as metals also had a slow day and markets were risk-neutral going into today's CPI.
The EUR and GBP were both essentially flat on the day, while the JPY was also flat and the CHF was ever so slightly weaker on the day. None of these currencies, however, moved with any kind of conviction and were all relatively stable overall. Everyone's gunpowder is being kept dry in anticipation of today's event.
Indices
Once again, as with currencies, not a huge amount happened. All three of the US majors lost ground, but with all three only losing between 0.3% and 0.45% overall. There may have been a small amount of profit-taking after the recent run-up and in advance of the CPI print, but moves of this size are not sufficient to draw any real conclusions from.
Outside of the US, the UK's FTSE 100 performed similarly to the US indices, while the Japanese Nikkei continued to regain ground after its struggles throughout July. Both of these markets only had small moves, though, reinforcing the fact that global markets are currently focused on the US and how it will affect everyone else.
Precious Metals
Metals arguably gave us the most interesting price action of the day, but even then the movement was subdued. Gold fell 0.5% on the day to $4,370, and silver fell 1.57% to $64.68, both falling on a day when oil rose. The question then becomes, was this fall due to some profit-taking or capital removal from markets ahead of the CPI print, or has some of the momentum fallen away from the metals' move?
As with the indices, there is not enough data from yesterday to be able to decide either way, and with the CPI print looking to be so consequential, market moves the day before can often be misleading. I would argue that we need to wait for the CPI and then the price action for the rest of the week before we decide just how much juice is left in the metals' push higher.
Today's Key Market Drivers
USD CPI, 1:30 pm UK time - The big news of the week, a surprise figure either way will be market-moving for every market.
Iran - Nothing has changed here; concrete news from the region will move markets significantly, while rumours will still move the market to a lesser extent.
Comments