Tension ahead of US inflation data

Stocks are treading water early on Tuesday as we await key US inflation data ahead of the open on Wall Street.

This isn't the most exciting week as far as major event risk is concerned but the proximity to the Fed meeting next week combined with a few select US data releases is creating some tension in the markets. We may see a lot more of this fence-sitting behaviour over the next week as traders await more taper clues from the central bank.

Policymakers have appeared keen to stress that a taper this year remains their preference but there has increasingly been a disconnect between what they're saying and what the data is doing. If we continue to see softness in the data, will the FOMC still persevere with tapering this year or could they be persuaded to hold off?

That's the question investors are craving an answer to. For now, they'll have to settle for more data to see if it piles on the pressure or provides a release. Today it's CPI inflation and its significance has only grown in the absence of Fed speak, with the blackout period now being upon us. An overshoot could cause a wobble in the markets as it will give greater cause for debate on the nature of the inflation data, transitory or something more worrying. The opposite could keep investors on board for now.

Sterling rallies on encouraging UK labour market data

The pound has been given a small boost by the UK employment data on Tuesday. The numbers were largely in line with expectations but with the unemployment rate continuing to fall and the number of payroll employees back at pre-pandemic levels, there's plenty to be optimistic about.

Of course, we can't ignore the favourable impact of the furlough scheme on the data. With it coming to a close at the end of this month, the true impact of the pandemic on UK employment will be much better understood, with a rise in unemployment and underemployment inevitable.

Still, the data is encouraging, albeit not so much that it puts any real pressure on the Bank of England to raise interest rates. The central bank can continue to be patient on that front, at least for now with the end of the year bringing the threat of another surge in Covid cases and possible restrictions.

Hurricane Nicholas lifts oil prices

Oil prices are rising once more, with WTI still sitting comfortably above $70 after recording two days of gains. The OPEC monthly report on Monday gave an encouraging assessment of crude demand this year and next, with the only glitch coming in the fourth quarter as a result of the Delta variant. But with demand seen exceeding pre-pandemic levels in 2022, things are looking up which should keep OPEC+ taper plans on schedule while continuing to chip away at inventories.

The US Gulf Coast is on high alert once more, as Hurricane Nicholas makes its way towards Texas. Coming so soon after Hurricane Ida caused havoc in the region, it seems oil traders are preparing for the worst. And with a couple more months of hurricane season still to go, prices may remain well supported.  

Gold eyes US inflation data

Gold is back in consolidation as nerves grow ahead of next week's Fed meeting. The yellow metal will remain sensitive to US economic releases this week, especially today's inflation reading, with any delay to tapering being a positive catalyst in the coming weeks.

Gold did break back above $1,800 late last month but the rally ran out of steam quickly, as policymakers rushed to reaffirm their belief that tapering should begin this year. Some are still of the view that it should start asap so it seems many are unmoved by the weakness we're seeing in the US data, most notably the shocking August jobs report.

Whether they'll remain so entrenched if the data continues to display weakness, or if inflation pressures recede, is another thing. Fear that inflation may not be as transitory as is currently believed seems to be driving the rush to taper, even as the economic recovery loses momentum and Delta spreads rapidly.

Bitcoin higher as support pours in once more

Bitcoin is back in positive territory on Tuesday after once again finding strong support around $44,000 a day earlier. It was some day for the crypto space after a fake story emerged of Walmart accepting Litecoin which naturally triggered a big move higher before the story was found to be false.

Cryptos are an obvious breeding ground for pump and dump schemes as prices experience extreme fluctuations in normal trading conditions. Throw in a fake headline and we have seen what can happen. Especially a headline that appears more legitimate as a result of the actions of other major companies in regards to cryptos in recent months, Tesla and Paypal for example.

From a technical perspective, little has changed on the bitcoin front. A significant break of $44,000 could see a sizeable correction follow, one that has been building for a number of weeks.