U.S. equities are rising on Monday, rebounding from last week’s declines on
Wall Street. Investors are strategically positioning themselves for pivotal
economic indicators set to be released later this week, coupled with the
culmination of the second quarter earnings results.
This week’s economic calendar is relatively subdued, with the spotlight
falling squarely on the U.S. Consumer Price Index (CPI) for July, slated
for release on Thursday, and the July Producer Price Index (PPI) following
on Friday.
The forthcoming CPI release is poised to provide insight into the
trajectory of price pressures and corroborate the market sentiment
surrounding the Federal Reserve’s potential course of action with regard to
its aggressive interest rate hiking campaign. Should the data reveal
diminishing inflationary pressures, it could bolster expectations that the
Fed is nearing the conclusion of its rate hike cycle.
However, economists have projected a potential deviation from recent
trends, suggesting that last month marked an upswing in U.S. inflation
growth for the first time since June 2022. Such an outcome would
potentially complicate the narrative of easing price dynamics in the
world’s largest economy.
Forecasts anticipate an annual acceleration of the Consumer Price Index for
July to reach 3.3%, up from the prior month’s 3.0%. On a month-to-month
basis, the reading is anticipated to remain unchanged at 0.2%.
Thursday’s CPI release will encompass the “core” index, which excludes
volatile elements like food and energy. Projections indicate a year-on-year
moderation to 4.7%, while the monthly metric is expected to retain its 0.2%
status quo.
Federal Reserve officials, having previously underscored their data-driven
approach to policy decisions, are poised to scrutinize these figures
meticulously.
The pursuit of attaining the Fed’s 2% inflation target has remained crucial
to the central bank’s year-long campaign of successive rate hikes. Data
trends since last summer indicate that these tightening measures have
effectively curbed inflationary pressures. Nonetheless, policymakers remain
attuned to potential inflation resurgence, signalling readiness to
implement further rate adjustments if the need arises.
Source: TradingView
Last week, the benchmark index declined 2.5%, marking the most substantial
weekly percentage downturn since March. This retreat, prompted by investors
capitalizing on accrued gains from five consecutive months of growth,
underscores the index’s sensitivity to market dynamics.
Investor attention also remains on the trajectory of Treasury yields, which
last week elicited market turbulence by rising substantially following
Fitch’s downgrade of the U.S. credit rating from AAA to AA+.
From a technical perspective as long as the index holds above its 4,328
support and the Relative Strength Index (RSI) indicators remains above 40%,
the current pull back is considered healthy and is treated as a correction
within the larger secondary up trend. While price action could become
choppy in the coming months, at this juncture in time the overall trend
remains up.
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