Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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They say good news comes in threes, but in the case of US inflation data, markets will have to settle for only two. Wednesday’s CPI publication fell perfectly inline with predictions, with headline and core year-over-year readings falling to 3.5% and 2.5% respectively in July. The lack of surprise translated into very little movement across financial markets, in what is turning into a rather dull week for traders. The bigger surprise arrived with the PPI release the following day, as producer prices remained steady in July, with an overall inflation rate of 0%, while the core element showed price appreciation of 0.2% from the prior month; both figures fell short of expectations.
The general inflation picture is suddenly looking a lot less pessimistic. The rebound in crude oil prices in July does not seem to have spilled over to consumer or producer prices, and the US has now observed two consecutive months of cooling. While current inflationary pressures remain above the Fed’s target of 2%, the central bank may not feel the need to act quite so hastily following the last two days of economic data prints. The implied odds of a rate hike on the dollar have fallen once again, this time nearing a 66/33 split in favour of a hold during the next meeting in mid-September. The next real inflation test will arrive at the end of August in the form of the PCE price index, a gauge more heavily favoured by the Federal Reserve anyway.
Putting on the tin-foil hat for a minute, if one were to manufacture the conditions for an end-of-year rate cut, this is almost exactly how one would go about doing so. US labour data weakened last week, although not too alarmingly, then inflation data started to show signs of cooperating, against expectations. Markets have been primed for months now about the growing threat of inflation, and the Fed has made it abundantly clear that it intends to combat such dangers. With that in mind, this week’s mundane print looks comparatively more promising. Afterall, the Fed does not have to wait until the inflation rate falls all the way down to the official 2% target before acting; if signs point in the right direction, the board can justify easing off a little. Very convenient.
The sense of optimism was enough to lift the S&P 500 to a fresh record high on Thursday, while the Nasdaq 100 climbed back over 30,000 points for the first time since June. The dollar itself has not undergone any significant moves in either direction over the past two weeks, with the DXY content to remain just shy of the 100-point level. A healthy degree of profit-taking occurred in precious metals yesterday, dragging gold down to $4,350 per ounce and silver down to the $64.50 range. Oil markets have mellowed out somewhat this week; the Brent Crude index sank marginally lower to $87 per barrel yesterday while WTI contracts fell as low as $80; still very little progress on the Iran front. The Nikkei and Kospi indices opened strongly this morning as trading got underway in Asia, maintaining the momentum seen in semiconductor stocks over the last couple of days.
Cryptocurrency traders are equally bored with the current state of affairs, as Bitcoin remains almost stationary around $64,000 per coin. At least the SEC had something to contribute to the conversation this week, stating that rules for certain digital assets may be pushed forward with or without the US Senate’s approval. The Clarity Act is dead in the water until September at the very earliest, but that may not stop regulators from exploring other means to achieve their goals. The SEC is scheduled to discuss such matters later today, where members will consider whether to "create a tailored offering regime for certain investment contracts involving crypto assets”. The body may also provide details on a possible legal exemption for tokenised stocks, something that the crypto industry has been working towards for many years already.
About the Author
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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