Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Have We Seen Peak US CPI?

By CMC Markets (Michael Hewson)Market OverviewAug 11, 2021 06:19
uk.investing.com/analysis/have-we-seen-peak-us-cpi-200492630
Have We Seen Peak US CPI?
By CMC Markets (Michael Hewson)   |  Aug 11, 2021 06:19
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
EUR/USD
0.22%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GBP/USD
+0.23%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/JPY
+0.03%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
EUR/GBP
+0.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NDX
-0.73%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
UK100
+0.51%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

It was another day of record highs for the STOXX 600 and FTSE 250, yesterday, with the FTSE100 also closing at a one month high, as cautious optimism in Europe outweighed concern about rising Delta variant rates in Asia, and to a lesser extent in the US, where infection rates are also rising.

Rising bond yields do appear to be starting to act as a drag on the Nasdaq, which closed the day lower, ahead of key inflation data later today out of the US. The United States 10-Year yield has risen for 5 days in succession, closing at a four-week high, while the United States 2-Year yield, closed at a 3-week high.

While the Nasdaq finished lower the Dow and S&P 500 both closed at new record highs, in the aftermath of the passing of the new infrastructure bill through the Senate, with Asia markets continuing the resilient tone with a similarly positive session.

As we look towards today’s European open there is an expectation of a similarly positive bias as we look towards this afternoon’s US CPI numbers.

The temperature in the US economy went up a notch in the most recent June CPI numbers, as headline inflation saw another big increase, rising to 5.4%, with core prices rising to 4.5%, the highest level since 1991, largely driven by another 10.5% rise in used car prices, which have remained resilient over the last couple of months.

We also saw a 1.5% increase in energy prices while food and rent inflation also rose more than expected. PPI prices also saw a big increase in June, which if recent trends are any guide could trickle up into today’s July CPI numbers, even though expectations are for a slight decline.

In the most recent core PCE Deflator numbers for June, this trend went into reverse as prices fell back a touch in an encouraging sign that inflation pressures may well have peaked.

While the Fed may well still be able to argue the continued rise in prices is transitory, given where the increases are occurring, if June’s number doesn’t mark the high-water mark, then Fed officials may start to shift a little bit more uncomfortably as we head into the autumn, however whatever happens this week the direction of travel towards a taper seems a little more straightforward than it was a couple of months ago, given recent jobs data.

For now, markets are buying the transitory narrative, due to the resilience of the labour market, however if the current trend of rising prices continues, “transitory” will be doing a lot heavier lifting than it is doing now.

Expectations are for July CPI to soften a touch, from 5.4% to 5.3%, and core prices to fall back to 4.3%, however if recent trends with respect to PPI are any guide, we could see an upside surprise in prices, and not a move lower.

If this happens US 10-year yields could well take another leg higher, towards the 50-day MA and towards 1.40%, while the US dollar could see further gains across the board.

EURUSD – closing in on support at the March lows at 1.1704, with a break below 1.1700, opening the prospect of a move towards the November lows at 1.1603. Resistance comes in at the 1.1830 area.

GBPUSD – holding below the 1.3870 area and ergo a test of the 1.3820 area. A fall below 1.3800 argues for a return to the 1.3720 area. We need to move back above 1.3880 to retarget the 1.4000 area.

EURGBP – continues to edge lower, posting a new 18-month low at 0.8450, with the potential to move lower towards the 2020 lows at 0.8280. The euro needs to recover back above the 0.8510 level to stabilise and squeeze back towards 0.8580.

USDJPY – a break above the 110.70 area, opens the potential for a move towards the July highs at 111.65, after last week’s break above the 109.80 area. This should now act as support for another leg higher.

"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "

Original Post

Have We Seen Peak US CPI?
 

Related Articles

Have We Seen Peak US CPI?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Ricardo ND
Rcd72 Aug 11, 2021 8:14
Saved. See Saved Items.
This comment has already been saved in your Saved Items
FED policy is going to destroy economy, raw material and energy are sky high , the "narrative" of "transitory " is blind , dangerous and speculative .... and above all worthless except to bring more innequallity and create economic cliffs for  social problem and tensions to rise
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email