Inflation updates were the focus this week, and it looks like the data potentially signaled a peak in the recent high inflation environment.
It looks like traders priced in less aggressive central banks going forward, most notably a move away from the Greenback as it was the biggest loser this week.
Notable News & Economic Updates:
Ukraine halted oil exports to Europe on Tuesday due to a payment dispute, according to Russia’s Transneft
API reported surprise build of 2.156M barrels in crude oil inventories
China ends series of live fire military drills around the island of Taiwan
U.S. consumer prices index came in below forecast at +8.5% y/y in July, sparking peak inflation bets across the markets on Wednesday
Chicago Fed President Evans says it’s likely that the Fed will raise interest rates into next year to stop inflation.
The Bank of Thailand raised its key interest rate 25 bps to 0.75% in a 6-to-1 vote
U.S. announced in $1B in military assistance for Ukraine on Wednesday
BlackRock offers institutional clients bitcoin investing services
U.S crude oil inventories rose to more than 5M bbls; oil flow from Russia-to-Europe through the Druzhba pipline resumed
International Energy Agency raised their oil demand growth forecast for 2022 by 380K bbl/day
Intermarket Weekly Recap
The doldrums of Summer continued this week, characterized by another round of relatively light volatility and a lack of major economic or geopolitical catalysts.
Arguably, the only event of note was the latest inflation updates from the U.S., with the biggest market reaction coming in on Wednesday after the latest Consumer Price Index read. We saw a lower-than-expected increase in prices, clocking in at 0.0% m/m and the annualized read at +8.5% y/y vs. an expected +8.7% read.
The broad market quickly moved on this news, sparking U.S. dollar weakness on the possibility of the Federal Reserve becoming less aggressive on monetary policy tightening. Risk-on sentiment caught a bid immediately, likely on the same idea of central banks potentially easing back on the rate hike pedal.
Aside from the U.S. CPI event, we got other data points from around the globe signaling a potential slowdown inflation ahead with China’s CPI coming in below expectations at 2.7% y/y, as well as producer prices slowing a bit in Japan to 8.6% y/y from 9.4% previous.
It’s probably notable that these dips in inflation rates have been mainly attributed to the recent dip in energy prices over the past two months. Oil peaked back in June around $124/bbl, now trading between $88 – $94 in August.
As mentioned earlier, these signs of “peak inflation” seemed to have sparked a bullish reaction in risk sentiment, clearly shown by the gains in equities, oil and crypto from Wednesday on. That reaction seems to have been limited though, possibly a reaction to several Fed members commenting after the inflation updates, saying that they will remain aggressive given how high inflation conditions are.
Crypto assets were the big out performers this week, likely helped by news that the Ethereum merge may be coming sooner than planned (devs announced a tentative date of Sept. 15), as well as major news from the institutional world that BlackRock (the largest asset manager in the world a portfolio of nearly $10T in assets) will introduce bitcoin investing to its institutional clients.
In the forex space, the New Zealand dollar took the top spot this week, followed by the Aussie, both likely riding U.S. dollar weakness and the broad shift towards risk-on sentiment.
Consumers’ expectations for inflation over the next year in the U.S. declined to 6.2%; three year inflation expectations fell to 3.2%
U.S. home inventory for sale shot up in July, jumping 31% y/y
U.S. wholesale inventories rose by 1.8% m/m in June, while May was revised higher to 1.9% m/m
U.S. consumer prices in July: +8.5% y/y vs. +8.7% forecast; largely due to fall in energy prices
U.S. mortgage applications rose by 0.02% (SA) since the previous week; the average 30-yr fixed-rate mortgage increased to 5.47%
U.S. weekly jobless claims came in at 262K vs. 248K previous, the highest in nine months
U.S. producer prices index dipped -0.5% m/m in July, largely due to fall in energy prices; core gained by +0.2% m/m vs. +0.4% previous
U.S. import prices for July: -1.4% vs. +0.3% previous; largely due to the fall in energy prices
UoM Consumer sentiment survey ticked up in August with the preliminary read coming in at 55.1 vs. 51.5 in July; inflation expectations fell to 5.0% vs. 5.2% previous
Federal Reserve Bank of Richmond President Thomas Barkin said on Friday that keeping rates high is needed to get inflation to a sustainable basis
BRC: UK retail sales up by 2.3%, boosted by hot summer as inflation pressure continues
Bank of England will probably need to raise rates again, Ramsden says
RICS: UK house prices on the rise despite fall in new buyer inquiries
U.K. GDP shrank 0.6% in June vs. estimated 1.2% contraction
U.K. industrial production fell 0.9% instead of an estimated 1.3% drop
Sentix investor confidence in august: -25.2 vs. -26.4 in July, -24.7 expectations
German final CPI reading unchanged at 0.9% as expected
France CPI for July: +6.1% y/y; +0.3% m/m
Industrial production was up by 0.7% m/m in the euro area in June; +0.6% m/m in the EU
Swiss jobless rate unchanged at 2.2% as expected
No events of note from Canada. Loonie price action was mixed, and based on its gains (against USD, GBP, EUR, JPY) and losses against the comdolls, the main influence on price was likely the broad lean towards risk-on sentiment discussed earlier.
New Zealand inflation expectations dip for the first time in two years to 3.07% vs. 3.29% previous
NZ annual credit card spending down (-0.5%) for first time in nine months
New Zealand house prices fell – 2.9% y/y, the first negative read in 11 years
New Zealand Overseas visitor arrivals for June: +30.1% m/m
Business NZ manufacturing index improved from 50.0 to 52.7
AU Westpac consumer sentiment drops by 3.0% in Aug amid surging prices
NAB business confidence index jumped from 2 to 7 in July
Australia inflation expectations ease from 6.3% to 5.9% in August
Japanese Economy Watchers Sentiment index fell from 52.9 to 43.8 vs. 51.6 consensus
Japan current account deficit: ¥132.4B ($980 million) in June
Japanese producer prices slowed from 9.4% to 8.6% gain
Japan M2 Money Supply increased by 3.4% y/y in June
Preliminary Japan Machine Tool Orders for July: +5.5% y/y vs. 17.1%