MARKET WRAPS
Watch For:
EU industrial production; Italy labor cost index; UK industrial production, trade, index of services, monthly GDP estimates, Bank of England Deputy Gov. Sam Woods appears at Treasury sub-committee hearing; IEA oil market report; OECD harmonized unemployment rates; trading updates from Inditex, Exor, Tullow Oil, Dechra Pharmaceuticals
Opening Call:
Shares could retreat in Europe on Wednesday ahead of the report on the U.S. consumer-price index later in the day. In Asia, stock benchmarks were in negative territory; Treasury yields barely moved; the dollar was steady; while oil was mixed and gold fell.
Equities:
European stocks could be off to a wobbly start on Wednesday, as investors focus on U.S. consumer inflation data for its implications on U.S. Fed policy.
"CPI remains the most important monthly economic metric for the simple reason that if CPI does not continue to decline, markets will have to price in a more hawkish Fed, and that would be a headwind on stocks," said Sevens Report Research.
A "good" CPI report would show core inflation, which excludes energy and food prices, rose 0.2% or less in August, it said.
Economists polled by The Wall Street Journal have forecast that core CPI increased 0.2% last month and 4.3% year over year.
"A continued drop in core CPI will help to calm concerns that inflation is bouncing back, and that could trigger a solid drop in Treasury yields and a good relief rally in stocks," said Sevens Report Research.
Traders think the Federal Reserve will hold interest rates steady at its September meeting, but are divided about the chances of another increase before the end of the year.
Forex:
The dollar held steady in Asia, with trade likely to remain cautious ahead of U.S. inflation data which could affect interest-rate expectations and create volatility.
"Inflation data is the first set of a series of releases that could impact the market leading up to the Federal Reserve meeting next week," Alp Financial said.
Although the Fed could pause raising rates next week, some doubts remain about U.S. rate prospects for the remainder of the year, with another increase still possible.
The dollar is expected to weaken as more countries sell dollar reserves in favor of alternative currencies amid a global shift toward de-dollarization, said Natixis.
"The dollar will still remain the dominant reserve currency, but we are likely to move to a more multi-currency system," it said, adding that the use of renminbi as a forex reserve currency is likely to rise.
Countries such as China, India, Brazil, and Russia are trying to secure alternative forex reserve currencies, it added.
Bonds:
Treasury yields were barely changed, as traders prepared for August's data on inflation and retail sales on Wednesday and Thursday for more clues on whether the Fed plans to deliver one more interest-rate increase later this year.
Together, the data has the potential to influence the thinking of Fed officials on how much more monetary tightening is needed to push inflation back down to their 2% target.
In a WSJ survey with economists, August core annual CPI is forecast to slow to 4.3% from 4.7%, still well above the 2% target.
Currently, markets are pricing in a 93% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.50% on Sept. 20, according to the CME FedWatch Tool. The chances of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 36.4%.
"Investors are expected to stay largely treading water on Wall Street rather than taking any ambitious strokes ahead of the key consumer inflation reading," said Hargreaves Lansdown.
Energy:
Oil was mixed in Asia, following overnight gains amid the prospect of tight supply in coming months.
OPEC's latest monthly forecast indicates recent output cuts will tighten the market in the next few months.
"This would make it one of the largest deficits in more than a decade," ANZ said.
Traders also awaited further hints on the outlook for global energy demand, with a reading on U.S. inflation and a European central bank decision on interest rates due out this week.
The oil market could get even tighter if the economic data starts to improve for Europe or China, "which means we could easily see Brent crude make a run towards the $100-a-barrel level," Oanda said.
Metals:
Gold dropped in Asia, extending its overnight retreat.
In focus is U.S. inflation data due out later that will likely affect the Fed's next rate decision.
The reading holds significant importance ahead of the Fed's policy meeting in September and may provide additional insights into the inflation scenario in the U.S., "which could significantly impact investor expectations regarding the U.S. dollar and, consequently, gold trading," said https://urldefense.com/v3/__http://XS.com__;!!F0Stn7g!E2-jC-lSR5ciFhy1Z-4soQGW9RdvEbPoGEMbsKzNIbPPgS3VJbnEEnkU56ROrP2TXqjhJ35fOBtu1vTpCVRmw-yFeJ1a_z8uS_chfbkea-k$ .
"Any surprises to the upside could raise expectations of another rate hike, which would be negative for the precious metal," ANZ said. Prices of the noninterest bearing metal tend to move inversely to rates.
The strength of the dollar, "a headwind for gold, has been persistent with only a few minor pullbacks along the way," Altavest said. "More important, long-term Treasury yields continue to trend higher."
"We like gold in the longer run, but these two headwinds are keeping gold in check for the time being," it said.
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Copper prices were slightly lower, with sentiment weighed by the outlook for China's property sector.
Home sales in China's major cities are losing steam after a short rally boosted by recent property easing measures, ANZ said.
In Beijing, sales of existing homes plunged 35% last weekend from the week immediately after the easing, ANZ said.
Across China, transactions continue to drop, falling up to 20%, according to China Index Holdings data. Copper is used widely in the manufacturing sector and building construction.
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Iron ore prices were higher despite China's property sector losing momentum after a rebound driven by a raft of stimulus measures.
Analysts reckoned that investor sentiment was boosted by China's stronger-than-expected credit data in August.
"Traders look through the weak home sales to focus on stronger credit that should provide some support for steel demand," ANZ said.
TODAY'S TOP HEADLINES
What to Watch in the CPI Report: Did Inflation Continue to Cool in August?
Wednesday's inflation report could flash seemingly divergent signals: Consumers are likely to note that gasoline prices jumped in August, and the Federal Reserve could welcome further signs of milder underlying price pressures.
The consumer-price index report will be closely watched because it comes a week before the Fed's two-day policy meeting. Officials are likely to hold interest rates steady while debating whether another increase in November or December will be needed to maintain recent progress slowing inflation and economic activity.
U.S. stocks are facing a triple threat that could lead to more losses ahead
U.S. stocks are facing a triple threat from a stronger U.S. dollar, rising Treasury yields and higher oil prices that could further erode gains accrued by the main indexes since the start of 2023, analysts told MarketWatch.
"The summer rally in stocks is succumbing to higher oil, rates, and a stronger dollar," said Michael Kramer, founder of Mott Capital Management and a longtime independent equity analyst.
U.S. inflation is set for a big increase, CPI to show. Here's why.
Is inflation getting worse? Consumer prices are expected to post the biggest gain in August in more than a year. Here's how to read the latest consumer-price index.
Congress Heads to Wall Street to Urge Curbs on Investments in China
Washington politicians are urging Wall Street executives to accept new curbs on American investments in China in the name of U.S. security.
Leaders of a bipartisan House Select Committee on the Chinese Communist Party traveled to New York City this week to argue that financial entanglements with China have helped America's primary adversary advance its technological and military capabilities, and that the pursuit of profits has made U.S. financial executives largely blind to those risks. The upshot: U.S. financial houses, pension funds and university endowments have unwittingly provided the financial underpinning for China's buildup.
Big Businesses Should Disclose China Risks, Ex-SEC Chairman Says
The largest U.S. public companies should be forced to disclose their exposure to China and weigh how an "abrupt decoupling" might play out, former Securities and Exchange Commission Chairman Jay Clayton told lawmakers Tuesday.
Large companies with significant China footprints should be required to lay out for investors the extent of their exposure to China and the expected effects on operations and business of a substantial disruption to U.S.-China relations, Clayton said in testimony before the U.S. House of Representatives Select Committee on the Chinese Communist Party.
BP CEO Bernard Looney Resigns Over Past Relationships With Colleagues
BP CEO Bernard Looney resigned abruptly Tuesday over past relationships with colleagues, the company said, less than four years after taking over the London-based oil giant and embarking on an ambitious plan to position it at the vanguard of the global transition to renewable energy.
Looney's resignation was a surprise, and the company said in a release on Tuesday that his departure is immediate.
Russia Stalls in Offensive to Reverse Ukraine's Gains in East
KUPYANSK, Ukraine-Sitting under a tree on a bluff overlooking the Oskil River, two Ukrainian soldiers watched as several plumes from Russian airstrikes rose up along the front line, roughly 6 miles away.
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09-13-23 0016ET
