Equities digest cooler US CPI ahead of Fed Minutes

Macroeconomic/ geopolitical developments

• The S&P 500 and Nasdaq edged higher for a third straight week, gaining 0.36% and 0.14% respectively, while the Dow fell 0.60%. Rising energy prices and geopolitical uncertainty kept sentiment cautious despite easing inflation concerns and positive AI related earnings news.

• US inflation eased for a second month in July, with headline CPI falling to 3.4% and core CPI slowing to 2.5%. The softer data reduced expectations for a September Fed rate hike, although energy prices and August inflation will remain key to the policy outlook.

• Expectations for a September Federal Reserve rate hike have eased following softer inflation and weaker economic data, with markets now pricing a roughly 30% to 35% chance of an increase. However, persistent inflation risks mean investors will watch upcoming data and Fed Chair Kevin Warsh’s Jackson Hole speech closely for further clues on policy.
• Geopolitical tensions remain elevated as US Iran negotiations stall and the Strait of Hormuz remains largely closed, keeping oil prices around $87 per barrel. Any further disruption to energy supplies could push prices higher, reignite inflation concerns and complicate the outlook for global growth and interest rates.
• The Federal Reserve’s July Meeting Minutes will be closely watched on Wednesday for clues on inflation and the outlook for September rates. Friday’s Global Flash PMI releases will then provide an early snapshot of August business activity across major economies and offer further clues on economic momentum and Fed policy expectations.

Global financial market developments

• US and global equity averages were little changed for the week.
• US and European bond were little changed on the week
• The US Dollar Index was little changed on the week
• Gold futures were little changed on the week.
• Oil futures prices rallied through the week.

Key this week

Central Bank Watch: The main central bank activities this week are the Federal Open Market Committee Minutes on Wednesday and the People’s Bank of China Interest Rate decision on Thursday.

Macro Data Watch: The main macro data releases this week are the global Flash PMI on Friday, while other notable releases include Canadian CPI on Monday, UK Employment data on Tuesday and UK CPI on Wednesday.

Earnings Watch: The pace of second quarter US earnings reports slows this week, with investors turning their attention to results from Home Depot on Tuesday, Target on Wednesday and Walmart on Thursday.

Steve Miley (The Market Chartist)

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued