On Wednesday, US stocks slipped as investors continued their position-squaring ritual ahead of a much-awaited US CPI inflation report.

The stock market had an excellent beginning to the year's first half but encountered difficulties in August. With gasoline and oil prices soaring this month, traders gradually became anxious about the possibility of inflation reaccelerating, which might interrupt the US's disinflationary process before core inflation can be squashed. And this has caused many to worry about the potential for a more hawkish- for- longer central bank monetary policy that will negatively impact the market.

Indeed with West Texas Intermediate ( WTI) rising to its highest level since November last year, inflation expectations and concerns are rising tangentially. Given the recent sizzling gains in WTI, it's worth considering that inflation could jump over the next few months, especially with gasoline prices rising even faster. Too early, perhaps, to make much inroads in today's data, but it will be a significant complication as we advance if gasoline prices stay elevated. I honestly can't see how investors look the other way here, as they will be constantly reminded every time they drive by a gas station.

A report later on Thursday will offer a big clue on whether broader core inflation concerns are warranted. But ahead of the Dog Days of Summer, markets desperately need a much friendlier risk backdrop, which a softer-than-expected US CPI print could catalyze.

At a minimum, CPI must show that the previous month's drop was not a one-time event; otherwise, more Fed action might be needed to tame the inflation dragon.

While longer-duration stocks like Tech and Communication Services and Consumer Discretionary are weighed on the Index overnight, interestingly, 10-year US Treasuries are holding steady at ~4%, suggesting that the bond market, at least, is taking a more sanguine view. So with steady bond markets and stocks lower, it hints that investors continue to reduce equity positions from a high level of optimism to a more neutral setting, thinking an upside core CPI print could rock the boat given elevated position settings.

While some of the downswings this month could be attributed to the seasonally slimmer trading volumes that usually occur as we head deeper into summer, this week's move, however, has the hallmark of tactical reasons, as concerns rise about the US consumer, growth and inflation ahead of today's US CPI print.

SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.

Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD fluctuates near 1.0850 as markets assess Fed commentary

EUR/USD fluctuates near 1.0850 as markets assess Fed commentary

EUR/USD trades in a tight range at around 1.0850 on Tuesday. In the absence of high-tier data releases, the cautious market mood helps the USD hold its ground and limits the pair's upside. Meanwhile, investors continue to scrutinize comments from central bank officials.

EUR/USD News

GBP/USD stays in positive territory above 1.2700, awaits fresh catalysts

GBP/USD stays in positive territory above 1.2700, awaits fresh catalysts

GBP/USD struggles to stretch higher above 1.2700 on Tuesday as the mixed action in Wall Street supports the USD. Investors await fresh catalysts, with several Fed officials and BoE Governor Bailey set to speak later in the session. 

GBP/USD News

Gold steadies around $2,420 ahead of FOMC Minutes

Gold steadies around $2,420 ahead of FOMC Minutes

Gold gained traction and climbed to $2,430 area in the American session, turning positive on the day. The pullback in the benchmark 10-year US Treasury bond yield helps XAU/USD stage a rebound following the sharp retreat seen from the all-time high set at the weekly opening at $2,450.

Gold News

Shiba Inu price flashes buy signal, 25% rally likely Premium

Shiba Inu price flashes buy signal, 25% rally likely

Shiba Inu price has flipped bullish to the tune of the crypto market and breached key hurdles, showing signs of a potential rally. Investors looking to accumulate SHIB have a good opportunity to do so before the meme coin shoots up.

Read more

Three fundamentals for the week: UK inflation, Fed minutes and Flash PMIs stand out Premium

Three fundamentals for the week: UK inflation, Fed minutes and Flash PMIs stand out

Sell in May and go away? That market adage seems outdated in the face of new highs for stocks and Gold. Optimism depends on the easing from central banks – and some clues are due this week.

Read more

Majors

Cryptocurrencies

Signatures