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MNI US OPEN - Usual Drivers to Support Milder Uptrend in US Core CPI

EXECUTIVE SUMMARY:

Figure 1: Recent US Inflation Developments

NEWS

MNI US CPI PREVIEW - JULY 2023: Core CPI Seen Similar to June on Two-Sided Familiar Drivers

Consensus puts core CPI inflation at 0.2% M/M in July in what’s likely only a minor uptick from the unrounded 0.16% M/M in June. Analysts see two conflicting (and familiar) drivers on the month: airfares (upside) and used cars (downside). The market remains sceptical of additional hikes from here, pricing just 8bp of cumulative tightening with the November meeting. NY Fed’s Williams and Philly Fed’s Harker have this week talked on 2024 rate cuts and there is more than 140bps of cuts priced for 2024. We suspect reaction is skewed larger in the event of a miss.

US/CHINA (MNI): US to Restrict Sensitive Investments In China

MNI (Beijing) U.S. President Joe Biden has signed an executive order to ban certain U.S. investments in China, according to a treasury department announcement on Wednesday. The measures will prohibit U.S. persons from investments in China involving sensitive technology such as semiconductors, quantum information technologies and artificial intelligence. The Treasury department press release said policymakers had decided on “narrowly targeted action which complements our existing export control, protecting our national security while maintaining our commitment to open investment.”

US/AUSTRALIA (BBG): Biden to Host Australian Leader Albanese in October Visit to US

President Joe Biden will host Australian Prime Minister Anthony Albanese for an official visit to the US on Oct. 25, including a state dinner, in the latest sign of close relations between Washington and Canberra. Albanese will travel to the US from Oct. 23-26, where he will meet with Biden to discuss further progress on US-Australia agreements around climate change, critical minerals and the AUKUS security partnership.

US (BBG): Biden to Seek $25 Billion in New Funding, Including for Ukraine

President Joe Biden intends to submit a supplemental funding request of at least $25 billion to Congress, according to a person familiar with the plans, setting up a possible showdown with Republicans less willing to provide further financial support for the war in Ukraine. The supplemental request will include approximately $12 billion for disaster relief and $13 billion for defense funds, including assistance for Ukraine, according to the person familiar. The emergency funds would not be subject to budget caps.

US (BBG): Trump Says He Won’t Sign Pledge to Back Nominee as Debate Nears

Republican frontrunner Donald Trump said he would announce next week whether he would attend the first GOP presidential debate, but insisted he would not sign a required pledge to support the party’s nominee. “I have a problem with the debate for another reason. I wouldn’t sign the pledge,” Trump told Newsmax’s Eric Bolling in an interview broadcast on Wednesday night.

US (BBG): US Plays Down Talk of Breakthrough on an Israel-Saudi Accord

The US and Saudi Arabia continue to work on a framework aimed at Saudi recognition of Israel in exchange for US security guarantees for Riyadh — though the Biden administration signaled Wednesday there’s still a long way to go. “There is no agreed-to set of negotiations, there’s no agreed-to framework to codify normalization or any of the other security considerations that we and our friends have in the region,” John Kirby, spokesman for the US National Security Council, told reporters.

GERMANY (MNI): Signs German Insolvencies May Have Peaked - IWH

The number of German companies going bust may be close to its near-term peak, with August and September not expected to see a significant rise in insolvencies compared with June and July, a leading German economic think tank said Thursday. Some 1025 partnerships and companies became insolvent last month, according to the Halle Institute for Economic Research’s IWH Insolvency Trend tracker, 44% above the level reported in July 2022 but only 2% more than seen in June.

CHINA (BBG): China Regulator to Hold Meeting With Property Firms, Financiers

China’s securities watchdog plans to hold a meeting on the real estate market on Friday, according to people familiar with the matter, underscoring growing urgency among regulators to deal with a worsening property crisis. The China Securities Regulatory Commission plans to convene with some property developers and financial institutions virtually on Friday morning, said the people, who asked not to be identified because the matter is private. The gathering through video conferencing is being organized by the CSRC’s corporate bonds division, one of the people said.

CHINA (MNI): China to Increase Outbound International Tourists

MNI (Beijing) China has expanded the scope of countries where travel operators are allowed to offer outbound tour group vacations, according to the Ministry of Culture and Tourism on Thursday. According to Wind, experts anticipate the move will increase the need for international flights in H2, which follows the Politburo meeting in July calling for an increase to international flights.

CHINA (MNI): More Protection for Private Sector - NDRC

MNI (Beijing) China will crack down on local officials failing to honor agreements with the private sector, according to the National Development and Reform Commission (NDRC) on Thursday. The state planner said local governments found ignoring obligations or damaging fair-market transactions with the private sector will face consequences such as lower credit scores, restricted central budget support and limited access to local government special bonds.

CHINA (BBG): China’s Grain Basket Warns of ‘Hard Battle’ as More Rain Looms

China’s northeastern grain basket is bracing for more rains and flooding brought on by Typhoon Khanun, as producers struggle to recover from the impact of an earlier storm that ravaged farmland and destroyed crops. Heavy rains are expected in parts of China’s northeast that includes the provinces of Heilongjiang, Jilin and Liaoning, and the Inner Mongolia region, in the next few days. Local governments are making urgent preparations to secure agriculture production and minimize crop losses in an area that produces almost 30% of China’s grain.

RBA (MNI): Rate to Plateau, Despite Strong Inflation - Ex-RBA Staff

The Reserve Bank of Australia is only likely to hike the cash rate further should price rises fall outside its expectations, ex-staffers told MNI, though they cautioned that the weakness of the local dollar has tempered the effectiveness of monetary policy in containing inflation. Jonathan Kearns, former head of the RBA’s financial stability department and now chief economist at Challenger, believes monetary policy should be tighter, but slow wage growth means the Reserve would not need to raise rates as high as other countries.

ECUADOR (BBG): Ecuador Braces for Fallout of Presidential Candidate’s Killing

The assassination of a leading presidential candidate in Ecuador less than two weeks before the vote adds pressure to a country already wracked by political and drug violence. Fernando Villavicencio, an anti-graft crusader and journalist, was murdered while leaving a political rally at school in the capital city of Quito late on Wednesday. Warring cocaine cartels have turned the once-peaceful country into one of the most violent places in the world, making law and order central to all candidates running in the upcoming elections.

COMMODITIES (BBG): China Extends Ambition to Hold Greater Sway Over Iron Ore Prices

China is extending its ambition to have a greater say in iron ore pricing, a perennial bugbear for a nation that relies heavily on imports to feed its vast steel industry. China Mineral Resources Group, the state-owned giant established last year to consolidate the country’s purchases, is studying ways to expand into the spot market for ore, in addition to managing longer term contracts, according to an interview with Chairman Yao Lin in China Metallurgical News, a state-owned outlet.

DATA

JAPAN DATA (MNI): Japan July CGPI Rise Slows to 3.6% From June's 4.3%

  • JAPAN JULY CORP GOODS PRICE INDEX +3.6% Y/Y; JUN REV
  • JAPAN JULY CORP GOODS PRICE INDEX +0.1% M/M; JUNE REV -0.1%

The year-on-year rise in Japan's corporate goods price index slowed to 3.6% in July from June's revised 4.3% for the seventh straight deceleration, indicating that upstream cost increases have peaked, data released by the Bank of Japan Thursday showed.

AUSTRALIA DATA (MNI): Lower Inflation Expectations But Still Around 2023 Average

The Melbourne Institute's consumer inflation expectations measure for August eased to 4.9% from 5.2%, the lowest since April. The series has struggled though to hold moves below 5% and has averaged this rate since December last year. They have moderated from their peak of 6.7% in June 2022. There were a number of recent factors that would have helped to bring down inflation expectations. Petrol prices in the first week of August and last week of July fell.

FOREX: Currencies Receive Jolt of Risk-On as European Equities Start Strong

  • Markets have received a jolt of risk appetite early Thursday, helping pressure haven currencies and keep the USD and JPY on the backfoot. The softer USD coincided with a positive open for European equity markets, allowing EUR/USD to post a bullish break of the consolidative pennant formation in the pair across the first few weeks of August.
  • JPY weakness extended through overnight Asia-Pac trade, prompting USD/JPY to print above Y144.00 for the first time since early July. This further narrows the gap in the pair with the key bull trigger at Y145.07.
  • Front-end vols are seeing further support ahead of the US CPI print later today, with overnight implied topping 14 points for the first time since the July and June FOMC decisions.
  • The single currency and CHF are the firmest across G10, while JPY, USD and CAD are among the poorest performers.
  • The July CPI print takes focus Thursday, with markets expecting core Y/Y to slow to 4.7%, however the headline to pick up to 3.3% from 3.0%.

BONDS: Waiting for CPI

  • Moves have been a little limited in the European morning session with markets awaiting the key US CPI report which is due at 8:30ET / 13:30BST, although we have seen a little weakness in the German and gilt curves relative to yesterday's close.
  • For the CPI report the market remains sceptical of additional hikes from here, pricing just 9bp of cumulative tightening by the November meeting. NY Fed’s Williams and Philly Fed’s Harker have this week talked on 2024 rate cuts and there is more than 140bps of cuts priced for 2024. We suspect reaction is skewed larger in the event of a miss.
  • Today will also see speeches from Daly, Bostic and Harker (again).
  • TY1 futures are down -0-3 today at 111-09+ with 10y UST yields up 0.8bp at 4.016% and 2y yields down -0.7bp at 4.803%.
  • Bund futures are down -0.41 today at 132.46 with 10y Bund yields up 3.2bp at 2.527% and Schatz yields up 2.1bp at 2.962%.
  • Gilt futures are down -0.18 today at 949.99 with 10y yields up 2.3bp at 4.387% and 2y yields up 2.1bp at 4.932%.

EQUITIES: E-Mini S&P Pares the Majority of Wednesday's Losses

A bearish threat in Eurostoxx 50 futures remains present following the reversal from 4513.00, the Jul 31 high. Tuesday’s move lower reinforces the current condition and price remains below both the 20- and 50-day EMAs. Furthermore, key support at 4331.00, the Jul 26 low, has been cleared. This further strengthens current conditions and opens 4220.00, the Jul 7 low and a reversal trigger. Initial firm resistance is 4424.00, Aug 2 high. Bearish conditions in the E-mini S&P contract remain intact and price is trading closer to its recent lows. Last week’s sell-off resulted in a break of support at the 20-day EMA following a recent failure at the top of the bull channel - this also highlights a bearish development and the risk of an extension lower near-term. Further downside would open 4460.64, the 50-day EMA. Resistance to watch is 4560.75, the Aug 4 high.

  • Japan's NIKKEI closed higher by 269.32 pts or +0.84% at 32473.65 and the TOPIX ended 20.94 pts higher or +0.92% at 2303.51.
  • Elsewhere, in China the SHANGHAI closed higher by 10.073 pts or +0.31% at 3254.56 and the HANG SENG ended 2.23 pts higher or +0.01% at 19273.08.
  • Across Europe, Germany's DAX trades higher by 83.68 pts or +0.53% at 15950.77, FTSE 100 higher by 8.41 pts or +0.11% at 7592.03, CAC 40 up 80.47 pts or +1.1% at 7403.75 and Euro Stoxx 50 up 41.78 pts or +0.97% at 4360.11.
  • Dow Jones mini up 191 pts or +0.54% at 35376, S&P 500 mini up 26 pts or +0.58% at 4509.25, NASDAQ mini up 100.75 pts or +0.66% at 15266.75.

COMMODITIES: Recent Price Action in Gold Affirms Bearish Conditions

The uptrend in WTI futures remains intact. The contract traded higher yesterday, confirming a resumption of the bull cycle. Price has also breached resistance at $83.59, the Nov 7 2022 high. A clear break of this hurdle would strengthen a bullish condition and pave the way for a climb towards $87.43, a Fibonacci projection. Moving average studies remain in bull-mode condition highlighting an uptrend. Initial firm support lies at $78.69, the Aug 3 low. Gold remains bearish and the yellow metal traded lower yesterday, confirming an extension of the bear cycle that started Jul 20. $1924.5, the Jul 11 low, has been breached. The move lower signals potential for weakness towards the key support at $1893.1, the Jun 29 low. A break of this level would strengthen bearish conditions. Initial firm resistance to watch is $1947.2, the 50-day EMA.

  • WTI Crude up $0.09 or +0.11% at $84.54
  • Natural Gas down $0.01 or -0.17% at $2.958
  • Gold spot up $4.81 or +0.25% at $1920.91
  • Copper up $1.95 or +0.52% at $380.25
  • Silver up $0.14 or +0.63% at $22.8401
  • Platinum up $9.57 or +1.07% at $904.2

DateGMT/LocalImpactFlagCountryEvent
10/08/20231230/0830**USJobless Claims
10/08/20231230/0830**USWASDE Weekly Import/Export
10/08/20231230/0830***USCPI
10/08/20231430/1030**USNatural Gas Stocks
10/08/20231530/1130**USUS Bill 04 Week Treasury Auction Result
10/08/20231530/1130*USUS Bill 08 Week Treasury Auction Result
10/08/20231700/1300***USUS Treasury Auction Result for 30 Year Bond
10/08/20231800/1400**USTreasury Budget
10/08/20231900/1500USAtlanta Fed's Raphael Bostic
10/08/20231900/1500***MXMexico Interest Rate
10/08/20232015/1615USPhiladelphia Fed's Pat Harker
11/08/20230600/0700**UKUK Monthly GDP
11/08/20230600/0700**UKIndex of Services
11/08/20230600/0700***UKIndex of Production
11/08/20230600/0700**UKTrade Balance
11/08/20230600/0700**UKOutput in the Construction Industry
11/08/20230600/0700***UKGDP First Estimate
11/08/20230645/0845***FRHICP (f)
11/08/20230700/0900***ESHICP (f)
11/08/2023-***CNMoney Supply
11/08/2023-***CNNew Loans
11/08/2023-***CNSocial Financing
11/08/20231230/0830***USPPI
11/08/20231400/1000**USU. Mich. Survey of Consumers
11/08/20231600/1200***USUSDA Crop Estimates - WASDE

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