Global markets on edge for key US inflation data

Investors hold their breath in anticipation of key US inflation figures and their ripple effects across the economic landscape

By Ahmed Azzam | @3zzamous | 10 August 2023

  • Asian Markets React: Most major Asian stock markets mirror US market downturn, with notable exception in Japan's Nikkei surge.

  • Japan's PPI Retreat: Japan’s Producer Price Index experiences seventh consecutive monthly decline, settling at 3.6% YoY.

  • US Inflation Dynamics: Anticipation builds for US inflation data that might bolster the case for a September Fed pause.

  • Core and Headline CPI: Both expected to rise 0.2% MoM in July, aligning with Fed's annualized 2% target.

Asian Stocks resonate the US slide, but Japan's Nikkei ignites optimism

In a synchrony of global economic currents, most major Asian stock markets find themselves dipped in hues of red, a reflection of the prevailing downturn experienced in the American markets during the preceding night. A notable anomaly amidst this trend is found in Japan's resolute Nikkei index, which has defied the overarching pessimism, propelled forward by a robust procession of earnings reports from stalwarts of industry, including Honda and the oil & gas explorer, Inpex. This luminous surge of sentiment has, however, cast its shadows upon the Yen, causing it to breach the thresholds of near-term supports in its encounters with pivotal counterparts such as the Dollar, Euro, and Swiss Franc.

Japan’s PPI slows down for seventh consecutive month

The latest iteration of Japan's Producer Price Index (PPI) for the month of July has once more sounded the chimes of moderation, decelerating gracefully from its preceding dance of 4.3% year-on-year to a rhythm of 3.6% year-on-year. Noteworthy, however, is the slight outperformance against the collective predictions of the market pundits, who had harbored expectations of a steeper decline, settling around the mark of 3.5% year-on-year. An intriguing historical thread emerges from this narrative as it marks the seventh consecutive month of descent for the PPI, a regal procession tracing its lineage back to the exalted zenith of December, whence it commanded a formidable 10.6% year-on-year.

US CPI awaited

Transpacific contemplations steer our gaze toward the impending revelation of US inflation data, poised to make its grand entrance upon the stage of financial discourse. This eagerly anticipated spectacle stands poised to fortify the arguments in favor of a forthcoming pause by the Federal Reserve in the month of September. The unfolding script projects both core and headline Consumer Price Index (CPI) figures to ascend by a measure of 0.2% on a monthly basis in the month of July, holding steady in alignment with the crescendo witnessed during the preceding month of June. Should this symphonic tempo persist, the core reading shall resound harmoniously with the Federal Reserve's targeted 2% over the course of an annualized chronicle. The ballet of year-on-year core CPI growth is anticipated to execute a graceful pirouette towards a more muted cadence of 4.7%, gracefully executed by the waning impact of rent escalations and the gentle descent of vehicle prices from their ephemeral zenith. Meanwhile, the grand theater predicts the headline CPI to ascend from its preceding zenith of 3.0% to attain the new peak of 3.3%, while the steadfast core CPI shall maintain its principled position at the eminent plateau of 4.8%. This anticipated crescendo in headline inflation, heralding the primal surge after an annual sojourn, can be attributed to the complex interplay of unfavorable base effects and the measured uptick in the pricing movements of our ethereal friend, gasoline. In this ensemble of figures, the gesticulations of headline inflation are poised to reverberate across the grand hall, yet they shall not likely startle the esteemed assemblage of Federal Reserve officials who maintain their resolute stance amidst the fluid choreography of the markets.