Oil resists to Russian supply cut, US CPI in focus

Russia halted crude flows to Hungary, Slovakia, and Czech Republic yesterday because sanctions prevented payment of a transit fee. The news didn’t trigger a bull run in crude oil yesterday, though pushed the price of American crude above the $90 mark, warning once again that upside risks prevail to the down-trending oil prices. Good news was that the US oil inventories rose by more than 2 million barrels last week, versus a decline around 400’000 barrels expected by analysts.  

Oil bulls are also quite this week, as US and Iran could finally reach a nuclear agreement, which would then unlock the Iranian oil and give a certain relief to the tight-supply market.  

Chip stocks in trouble? 

Micron Technology was the latest US chipmaker to warn of a significant slowdown in chip demand, yesterday. The stock tumbled 3.74% and sent Nasdaq’s semiconductor index 5% lower at some point. A Citi analyst said that they believe ‘we are entering the worst semiconductor downturn in at least a decade, and possibly since 2001 given the expectation of a recession and inventory build’.  

Yes, but Micron also announced it would invest $40 billion in US plants relying on the government’s $52 billion bill, and to counter the growing Chinese competition. However, the disappointing quarterly results, and warnings of a slower industry demand could kill the Chips Act rally that was triggered at the beginning of last month.  

Elsewhere, Coinbase announced a $1.1 billion loss and missed the revenue expectations in Q2 as the tumbling cryptocurrency prices battered earnings. Coinbase shares plunged 10%, Bitcoin slipped below the $23K mark, along with the selloff in Nasdaq stocks. 

US inflation is crucial for sentiment 

Today is probably the most important day of the week in terms of economic data, as the US will reveal its latest CPI data, and investors have high expectations of seeing a softer figure in July.  

The US CPI data is expected to have slowed to 8.7% in July, from 9.1% printed a month earlier. The recent downside correction in energy and commodity prices, the sharp fall in inflation expectations, as released by the NY Fed yesterday, and deflation in online goods prices point that we may see some relief on consumer prices of last month. Rising wages, and high rents remain factors that could keep inflation sticky at high levels.  

A CPI figure in line with expectations, or ideally softer will certainly temper the hawkish Federal Reserve (Fed) expectations, pull US yields lower and trigger a relief rally across stock markets. We could then see the S&P500 make another attempt on the critical 4200 resistance.  

Looking at the gold chart, a further downside correction in the US yields, along with geopolitical tensions in Ukraine and Taiwan, could push the price of an ounce higher, and lead to a cup and handle formation, paving the way for a positive breakout above the $1800 mark in the coming sessions.  

However, a higher-than-expected CPI print, or worse, a number above last month’s 9.1% print would revive the expectations that the Fed would continue hiking rates by big chunks – especially given that the jobs market seems surprisingly resilient to the Fed tightening so far. That would send the US yields higher and encourage a downside correction of the July stock rally. We could see the S&P500 pullback to the 50-DMA, around 3950 mark.