U.S. inflation was front and center on Thursday, as the major assets’ traded with mixed results ahead of the release and then took their cues from the report during the U.S. session.
How did the markets behave yesterday?
We have the headlines and the charts:
Headlines:
- Melbourne Institute inflation expectations slowed down from 4.4% y/y to 4.3% y/y in July
- German final CPI for July unchanged at 0.1% m/m as expected
- U.K.’s GDP for May: 0.4% m/m (0.2% expected, 0.0% previous); Real GDP’s three-month average grew by 0.9% and marked its fastest rate since January 2022
- U.K. industrial production for May: 0.2% m/m (0.3% expected, -0.9% previous); Manufacturing production improved from -1.6% m/m to 0.4% as expected
- U.K. NIESR expects GDP to slow down from 0.7% q/q Q1 to 0.6% q/q in Q2 and then to 0.4% in Q3
- U.S. CPI for June: -0.1% m/m (0.1% expected, 0.0% previous); Core CPI eased from 0.2% to 0.1%; Annual CPI decelerated from 3.3% to 3.0% (3.1% expected)
- U.S. initial jobless claims eased from 239K to 222K (236K expected) in the week ending July 6
- FOMC voting member Mary Daly said “policy adjustments will be warranted” following the U.S. CPI report but the timing is “still unclear”
- U.S. federal budget deficit shrank from $347.1B to $66.0B ($71.2B expected) in June
- BusinessNZ manufacturing index dropped from 46.6 to 41.1 in June, marking its lowest since August 2021
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Volatility was relatively tight during the Asian and early European sessions as traders waited for the closely watched U.S. inflation updates.
Bitcoin (BTC/USD) saw a bit more volatility, dipping to $57,090 before shooting up to the $58,500 area by the U.S. session.
U.S. crude oil prices were also all over the place. It rose to $82.80 early in the day following Wednesday’s EIA crude oil inventory report then declined to $81.75 before the U.S. CPI release. It ended the day comfortably above the $83.00 handle thanks to weaker U.S. inflation and reports of increased summer demand.
Spot gold and U.S. 10-year Treasury yields took their cues from a cooler-than-expected U.S. CPI report. Gold – a popular USD alternative – jumped to the $2,425 levels before steadying at $2,415 while 10-year U.S. bond yields dropped to 4.168% before pulling back up to 4.210% by the end of the day.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar started the day by extending its marginal downswings from Wednesday’s U.S. session. Prices eased and then ranged during the early London session as a lack of market-movers and caution ahead of the U.S. CPI release encouraged profit-taking.
The Greenback fell across the board when the U.S. printed notably cooler inflation pressures in June. Not only did the report help raise the odds of a September rate cut, but it also encouraged speculations of multiple Fed rate cuts before the year ends.
USD bulls soon stepped in, however, pulling the dollar up from its intraday lows. Aside from hedging flows, traders may have bought the safe haven as U.S. equity prices turned lower. Some also point to a potential BOJ currency intervention being leaked, which encouraged USD buying.
The dollar capped the day higher than its post-CPI lows but still in the red against its major counterparts. It saw the most losses against the yen and the European currencies but also ended the day higher against the Canadian dollar.
Upcoming Potential Catalysts on the Economic Calendar:
- Japan revised industrial production at 4:30 am GMT
- German wholesale price index at 6:00 am GMT
- France’s final CPI at 6:45 am GMT
- Canada’s building permits at 12:30 pm GMT
- U.S. PPI reports at 12:30 pm GMT
- U.S. preliminary UoM consumer sentiment and inflation expectations report at 2:00 pm GMT
We may see another opportunity for increased volatility as Uncle Sam prints its June producer prices and the preliminary consumer sentiment and inflation expectations survey for July.
Signs of easing price pressures and improved consumer sentiment would support a Fed rate hike, so make sure you’re glued to the tube during the reports’ releases!
