Calm before the storm

Wells Fargo Research Team Wells Fargo

Summary

United States: Calm before the storm

It was a light calendar of economic data this week. The ISM Services index fell to 50.8, showing that the service sector may be losing momentum. An unexpected spike in jobless claims is a sign that cracks are forming in the labor market. Higher mortgage rates look to be hindering a housing market rebound. Mortgage applications for purchase have now declined for four straight weeks. Net exports are setting up to be substantial drag on Q2 real GDP growth.
Next week: CPI (Tue), Retail Sales (Thu), Industrial Production (Thu)

International: Hawkish hikes from Bank of Canada and Reserve Bank of Australia

Bank of Canada policymakers surprised market participants this week, coming out of a pause with a 25 bps rate hike to 4.75%. The BoC indicated that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to target. Elsewhere, the Reserve Bank of Australia also delivered a 25 bps rate hike at its June meeting, bringing the Cash Rate to 4.10%, in line with our expectations but a surprise to many market participants. Similarly to the Bank of Canada, the monetary policy announcement language was hawkish in nature, leading us to believe more monetary tightening is on its way.
Next week: European Central Bank (Thu), China Activity Data (Thu), Bank of Japan (Fri)

Interest Rate watch: The Fed weighs a potential pause at next week's meeting

We see the most likely outcome for next week's meeting as the FOMC making no change to its policy rate, but making clear that another hike at its July 26 meeting remains a distinct possibility.

Credit market insights: Student loan debt forgiveness decision nearing

The Supreme Court of the United States is set to rule on President Biden's plan to forgive student loan debt in coming weeks. But regardless of that ruling, the end to the more than three-year payment pause is coming at the end of August and could provide a headwind to certain households.

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AUD/USD keeps range near mid-0.7100s as USD bulls await US CPI

AUD/USD steadies near mid-0.7100s in the Asian session on Friday, stalling the previous day's sharp decline to an over one-week low. The August PPI report reaffirmed Fed rate-hike bets and boosted the US Dollar on Thursday, which weighed heavily on the pair. However, hawkish RBA expectations limited losses for the Aussie as USD bulls now await the release of the US consumer inflation figures before placing fresh bets.

USD/JPY holds lower ground toward 154.00; looks to US CPI

USD/JPY holds lower ground toward 154.00 in the Asian session on Friday after hot Japanese PPI data bolster a more hawkish BoJ repricing and provide fresh impetus to the Japanese Yen. However, the downside appears capped as the US Dollar preserves overnight gains ahead of the latest US consumer inflation data.

Gold: Will US CPI inflation revive the uptrend?

Gold is hanging close to one-week lows near $4,310 early Friday, nursing heavy losses after the US Producer Price Index (PPI) data release and the recent upsurge in Oil prices. Gold is looking to recover a part of the previous heavy losses as traders resort to repositioning ahead of the all-important US Consumer Price Index (CPI) inflation report.

Bitcoin slips below $77,000 – Raydium, Falcon Finance hold gains

Bitcoin price trades below $77,000 on Friday, extending its capitulation from the previous week’s high at $82,300. Broader market consensus points to a higher likelihood that the US Federal Reserve could raise interest rates at the September meeting, as inflation concerns rise amid the war with Iran.

Dollar comeback case 'a decent one' – September Fed hike 'back in play'

The dollar was left nursing heavy losses against most of its major peers after last month’s Treasury buyback wobble. Notwithstanding this, we think that the case for a near-term bounce in the greenback is a decent one. Warsh's hawkish pivot at Jackson Hole, followed by what was a blowout US payrolls report for August, has put a September rate hike from the Fed back in play.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.