13th August - CPI Falls In Line
The big news yesterday was the US CPI print, which, after the size of the buildup it received, fell exactly in line with expectations and ended up close to a non-event. Core y/y was 2.5% and 0.2% m/m, while CPI itself was 3.4% y/y and 0.1% m/m. Today we have the second part of the inflation picture, with the US PPI figures released. It may not significantly differ from expectations if CPI did not, but as it can tend to be more sensitive to energy prices it will be worth keeping a keen eye on nonetheless.
In geopolitical news, Iran and the US continue to trade threats and claim control of the Strait of Hormuz, while the talks between Oman and Iran are said to be close to completion. Oil fell a little yesterday overall, with Brent currently sitting around $90 and US Oil at $81.80. Traffic remains throttled through Hormuz for the time being, while the IEA's monthly report warns the global market faces a 1.8 million barrel-a-day shortfall this quarter, so we are still in a situation where oil shortages are a real threat and something that should not be ignored while the focus lies elsewhere.
Forex
I had expected there to be a significant amount to talk about today, but after yesterday's CPI print was exactly as expected, markets did not make the moves we could have seen with a hot or soft print. The DXY was lower on the day before the release, before recovering afterwards to close the day just shy of the key 100.000 level. This could be a signal of just how pessimistic the market currently is towards the USD; a news release that is as expected rather than less than expected is rewarded rather than ignored tells me that markets were expecting worse. This is also on a day when rate hike predictions for September fell below 50%. Today's PPI will be another important news event for the USD, as there is still the potential for negative numbers to impact the currency heavily.
Outside of the USD, the NZD was weak on the day and lost ground once again to the AUD, with the effect of the different stages of each central bank's rate cycles in full effect. The RBA held this week with a hiking bias, giving the AUD support at the expense of the NZD, it would seem.
The CHF lost out to almost everything, as its 0% interest rate and a slightly risk-on session overall pushed down on the franc's demand. The JPY, by comparison, was neither up nor down, the narrative put out by the BoJ that there could be rate hikes coming seemingly giving it some support that the CHF could not find. The EUR and GBP were quiet once again, as neither currency currently has a catalyst to push them either way.
Indices
Yesterday saw a modestly positive session on the back of the CPI print, with the S&P 500 rising 0.26% and the Nasdaq gaining 0.54%, while the Dow was essentially flat, slipping 0.04%. The CPI came in exactly in line with expectations which was enough to keep the "no need to hike" narrative that took hold after last week's jobs report firmly intact, and markets are now pricing less than a 50% chance of a September hike, down from around 62% only a week ago.
What is more interesting than the index moves themselves is where the gains came from. CoreWeave surged 18% after narrowing its losses and meeting revenue expectations, Super Micro jumped 9% on an earnings beat and upbeat guidance, and Nebius rose 12.5% on better-than-expected margins. Add in strong results from Tencent and news that Temasek has taken fresh stakes in both SK Hynix and Samsung, and the AI infrastructure complex has had its best day in some weeks. It is worth noting that this is not a contradiction of the split we have been tracking. These are the suppliers and the infrastructure providers, not the hyperscalers doing the spending, and they are being rewarded for exactly the same trend that has seen the likes of Meta and Alphabet punished. The spender versus supplier divide is holding; it is simply the supplier side having its day. On that note, Intel has now increased its common stock offering from $15 billion to $20 billion to fund its own AI buildout, so the question of how all of this gets paid for has not gone away; it has just moved from the income statement to the balance sheet.
Today's PPI is the next test. If it comes in soft or as predicted and confirms what the CPI told us, then the pressure on the Fed eases further and the path of least resistance for the indices is higher, particularly for the rate-sensitive tech names. A hot PPI, however, would be the first genuine challenge to this week's narrative, and given how much has been priced in on the back of two dovish releases, I would expect the reaction to a surprise to be sharper than usual.
Precious Metals
The metals answered the question posed yesterday, and they answered it emphatically. Gold rose to a fresh high, closing around $4,408, while silver gained to around $65.30. So Tuesday's small fall was profit-taking ahead of the print rather than momentum fading, which was the more likely of the two explanations but by no means certain at the time.
The detail that matters most, though, is that once again the metals rose yesterday on a day when the dollar strengthened. Gold rising while the dollar gains against six of the seven majors is not a dollar-weakness trade; it is a rate-expectations trade. With September hike odds now below 50%, the direction of travel seems fairly clear. It also lends weight to the stagflation argument made earlier in the week. An in-line CPI that still shows inflation running above wage growth, with energy up almost 15% year on year and a labour market that shed 23,000 jobs last month, is exactly the sort of cost-pressure-into-weakness combination that supports gold regardless of what the dollar is doing.
My position from here has not changed. We have waited a long time for key levels to break, but it is not smart to chase a market that has run this hard this quickly. What we need to see is a pullback, ideally one that retests the levels that were broken through on the way up, as that would offer a far better entry than buying into a record high. Today's PPI could well provide that if it comes in hot, and I would view any such move as an opportunity rather than a reason to abandon the trade.
The medium to long-term picture, however, looks genuinely strong. The rate cycle appears to be turning, the labor market is deteriorating, real wages are falling, and central bank buying has not gone anywhere. Every one of the structural arguments for metals that had been buried by the rate-hike fear over the past year is now starting to reassert itself. I remain of the view that this is the trade to make sure you are in for the second half of 2026; I would simply rather be patient about how I get in.
Today's Key Market Drivers
US PPI, 1:30 pm UK time - The key market event of the day and the sequel to yesterday's CPI print. A hot print and stagflation concerns grow, a soft print and rate hike expectations fall further.
GBP GDP, 7:00 am UK time - A key indicator of the strength of the UK economy, one to watch out for if you are actively trading the GBP.
Iran - As always, news from the region will impact all markets.
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