Disinflation Narrative Holds Strong Amidst Rising CPI

Despite a surge in US inflation, the global financial landscape exhibited mixed performances, with European equities dipping ahead of the ECB rate decision. However, some green shoots emerged in the US and Asia.

Key Factors for Today

• Disinflation Narrative Remains Resilient Despite US CPI Uptick.
• US Core CPI Hits Its Lowest Pace Since September 2021.
• Crude Inventories Confirm Build, Weighing on WTI Prices.
• UK GDP Disappoints, While Manufacturing Shows Slight Improvement.
• Aussie Climbs on Robust Jobs Market Data.
• Japan's New Economy Minister Vows Support for Economy and Yen.

Market Movers

• Headline CPI in the US surprised slightly, reaching 3.7% annually, slightly above expectations.
• Core CPI in the US came in at 4.3%, aligning with September 2021 figures.
• US crude inventories grew by four million barrels, surpassing the two million barrel drawdown forecast.
• UK GDP contracted by -0.5%, the largest drop since the end of the previous year.
• Australia's unemployment rate remained stable at 3.7%, with the economy exceeding job creation expectations.
• Japan's new Economy Minister pledges to employ "all possible measures" to support the economy.

Economic Calendar

• ECB Interest Rate Decision.
• US Producer Price Index (PPI).
• US Retail Sales Data.
• Initial Jobless Claims.
• ECB Press Conference.
• New Zealand Business NZ PMI.

The Big News

Inflation Concerns and Mixed Dollar Performance

Inflation fears continue to play a prominent role in the global financial landscape. The latest US CPI data surprised markets by edging up to 3.7%, exceeding the 3.6% expected. This marks the second consecutive acceleration, raising concerns about the persistent inflation narrative. However, the core CPI remained at 4.3%, in line with the September 2021 figures. The dollar initially gained strength but eventually relinquished most of its gains, closing in the red against the euro.

Energy Sector Challenges Amid Crude Inventory Build

The energy sector faced its own challenges as the US Energy Information Administration (EIA) confirmed a build in crude oil inventories, reporting a growth of four million barrels, surpassing the anticipated two million barrel drawdown. Gasoline inventories also surged by 5.6 million barrels. Refinery utilization was higher, contributing to the build, and crude oil prices experienced volatility, moving further away from the $90-per-barrel mark. A support level is expected around $87.20 due to weakened demand.

UK GDP Contracts, Manufacturing Offers Hope

Over in the UK, the Gross Domestic Product (GDP) for July disappointed, contracting by -0.5%, marking the largest decline since the end of the previous year. The rolling three-month GDP figure also fell short, coming in at 0.2% compared to the 0.3% forecast. However, the manufacturing sector provided a glimmer of hope by declining by only -0.8%, surpassing the -1.2% forecast. The pound struggled to gain ground against the backdrop of these economic challenges.

Australia's Resilient Job Market Boosts Aussie Dollar

Australia, on the other hand, delivered a more positive note as its unemployment rate held steady at 3.7%, as expected. The country exceeded job creation expectations, adding 64.9K jobs compared to the 25K forecast. This resilience in the job market propelled the Australian dollar, with the AUD/USD pair advancing to 0.6455.

Japan's New Economy Minister Vows Support Amid Deflation Hopes

Japan's newly appointed Economy Minister, Yoshitaka Shindo, made a promising commitment in his inaugural press conference. He pledged to employ "all possible measures" to support the country's economy while acknowledging signs that deflation might be on the decline. This sentiment raised hopes of potentially ending ultra-easing policies that have been weakening the yen.