Inflation decline drives risk-on sentiment

The US has spent the day celebrating their declining inflation reading, but rising gas prices in Europe highlight how we are likely to continue seeing upside for prices closer to home.

US inflation decline helps boost stocks and weaken the dollar

“US markets have basked in the glow of a welcome decline in headline inflation, with optimists hoping that this could mark the beginning of a downward journey for prices. The recent decline in energy prices had hinted towards a potential easing of CPI inflation today, yet the fact that core CPI stands at 5.9% does highlight that it is not only an energy story in play here. While we have seen upside across European indices, the FTSE 100 has lagged thanks to a reversal for GBPUSD that serves to hold back an index which has around two-thirds of its revenues earned in foreign currencies.”

European gas prices rise as supply fears grow of a tough winter 

“While declining energy prices helped drag US inflation lower in July, there is grounds for hesitation in Europe given the supply and demand risks posed as we head towards autumn. The need to heat our homes may not be pressing right now, but European governments are trying their best to stockpile energy supplies ahead of a potentially tough winter. However, those efforts are being hampered once again by the news that water-borne shipments through the Rhine river are becoming virtually impossible thanks to low water levels. Unfortunately, the difficulties sourcing energy from non-Russian sources does mean we could see European gas prices head higher as demand ramps up later into the year.”