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Markets calm ahead of US CPI, China inflation flatlines

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By Craig Erlam  

It’s been a slow start to the week, but there’s still plenty to look forward to, most notably the US inflation data on Wednesday.

Friday’s jobs report did nothing to level the debate on whether to pause at the next Fed meeting in two weeks. In fact, it may have even cemented another 25 basis point hike despite the NFP number falling short of expectations and, to the relief of many, well short of the ADP release.

Wage growth in the U.S. remains a concern and on that front, the report was hot.

At 0.4%, the monthly increase was a little higher than anticipated, while the annual reading remained at 4.4% (after an upward revision to the May number) despite an expectation that it would drop to 4.2%.

Markets now see another hike as being almost 90% likely, which seems fair under the circumstances.

Weak Chinese demand sees inflation flatline

The data from China overnight paints quite the opposite picture. An economy struggling on the demand side, despite initially rebounding strongly following the abolition of zero-Covid.

Excess supply is causing deflation at the PPI level and even CPI is now flat on an annual basis.

This is more pronounced in goods, a trend we’re seeing elsewhere as services remain where the demand is, but even here we’re seeing more weakness than expected.

Stimulus feels inevitable, but so far it hasn’t been forthcoming enough and when it does arrive it will likely continue to be very targeted.

Oil finally breaks higher

Another strong showing on Friday saw oil prices finally make a significant move higher, with Brent breaking above $77 and ending the series of lower highs in price.

There still remain obstacles above, but this could be a significant break in the price after such a long period of consolidation.

What’s more, there doesn’t appear to be any shortage of momentum behind the move; in fact, it has seemingly increased which could be another bullish signal.

The next obstacle for Brent could be $78.50, where it failed in June and appears to be seeing some resistance again.

Saudi Arabia and Russia may finally get what they wanted with the recent cuts.

Gold choppy after NFP

It’s been a choppy couple of weeks for gold which appears to have consolidated again, this time in the $1,900-1,940 range. There hasn’t been any particularly good news for the yellow metal of late and Friday’s jobs report seemingly gave with one hand and took with the other.

Perhaps Wednesday’s inflation data will change that but for now, gold traders appear uncertain about what lies ahead and therefore what it ultimately means for the yellow metal.

They aren’t giving up easily, but a hotter inflation number could change that.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.