Daily Market Pulse
Annual US Inflation Climbs to 3.7%, Rising for Second Consecutive Month
5 minute readUSD
The Dollar is clinging to modest gains this morning following the latest US consumer inflation report that was slightly hotter than expected.
US annual inflation increased for the second consecutive month to 3.7% in August, driven by rising oil prices and base effects from 2022. Energy costs fell, but less than in July, while inflation slowed for categories such as food, shelter, and new vehicles. Meanwhile, the annual core inflation rate slowed to 4.3%, its lowest since September 2021, but rose by 0.3% on a monthly basis.
In addition, US mortgage applications fell 0.8% last week to their lowest level since December 1996. Refinance applications dropped by 5.4%, purchase applications increased by 1.3%, and the average interest rate for 30-year fixed mortgages rose to 7.27%.
EUR
The Euro is inching lower on the day as markets react to this morning's US CPI and Eurozone industrial output data.
Eurozone industrial production fell by 1.1% in July, the first contraction since March and more than the expected decrease of 0.7%. Energy production and non-durable goods increased, while the production of durable goods and capital goods continued to contract. On an annual basis, output fell 2.2%, the fifth consecutive month of contraction.
The focus now shifts to tomorrow's pivotal ECB interest rate decision at 8:15 AM EST. The odds of another 0.25% hike have risen to over 60% after yesterday's Reuters report that the ECB projects inflation to remain above 3% next year.
GBP
The British Pound is flat today in the aftermath of disappointing UK GDP and industrial production data.
In July, the UK economy contracted by 0.5%, its largest monthly decline of the year, led by a downturn in the services sector, particularly in human health activities, computer programming and consultancy. Meanwhile, industrial production declined by 0.7% month-on-month and manufacturing output contracted by 0.8%, driven by decreases in several sub-sectors, including rubber and plastic products and computer electronic products.
On the trade front, the UK's trade deficit narrowed in July, driven by a 1.8% increase in exports and a 0.2% drop in imports - the lowest since February 2022.
JPY
The Japanese Yen is in the red this morning as traders assess a fresh batch of inflation numbers out of Japan and the US.
Japan's PPI increased by 3.2% year-on-year in August, marking the eighth consecutive month of a slowdown in producer inflation and the lowest level since March 2021. Food, beverages, iron, and steel were among the categories with the most notable price moderations. On the other hand, prices rose by 0.3% on a monthly basis, up from a 0.1% increase in July.
Meanwhile, large manufacturing firms in Japan reported a significant improvement in their business conditions in Q3, with their confidence reaching the highest level since Q4 2021.
CAD
The Loonie is slightly lower on the day as the North American session gets underway. With another blank slate on the Canadian calendar today, the Loonie is driven by reactions in the Greenback and oil prices to the latest US inflation figures.
The final read of Canada's wholesale sales for July is set for release at 8:30 AM tomorrow morning. The preliminary read showed sales rebounded by 1.4% month-on-month, with notable gains in most subsectors, including motor vehicles and building materials.
This week, manufacturing and new motor vehicle sales are also on the docket, set for release on Friday.
MXN
After posting a 0.2% gain versus the Dollar yesterday, the Mexican Peso is up around 0.1% this morning as MXN traders analyze the impact of the US inflation report and the latest moves in the oil market.
Crude oil futures are up over 0.5% today, with WTI testing the $90 mark for the first time this year, helping the commodity-linked Peso. Yesterday, the US Energy Information Administration predicted a significant drop in global oil inventories in the second half of 2023, leading to higher oil prices in the coming months due to cuts by OPEC+ nations, including Saudi Arabia and Russia.
BRL
The Brazilian Real is modestly higher this morning following today's US CPI print and the latest comments from Brazil's planning minister regarding interest rates.
According to Planning Minister Simone Tebet, the Brazilian government is anticipating further cuts of at least 0.5% over the remaining three BCB meetings in 2023 with the goal of ending the year with a rate below 12%. The Selic rate currently stands at 13.25%, following the central bank's recent 0.5% cut. Tebet also expressed support for the formal autonomy of the central bank and confidence in eliminating the primary budget deficit in 2024.
CNY
The Chinese Yuan is in the green for the third consecutive day as traders gear up for an array of key economic releases out of China tonight.
China's housing price index is on deck at 9:30 PM EST and will be closely watched by global investors amidst the country's brewing property crisis. The housing report will be followed by retail sales, industrial production, and the unemployment rate at 10:00 PM EST. Market forecasts point to a slight uptick in both industrial production and retail sales.
Finally, the PBOC will announce its decision on its one-year MLF rate. Market expectations indicate the central bank will hold the rate at 2.5%.
