US consumer prices rose by a seasonally-adjusted 0.2% in July, unchanged from the previous month and in line with market expectations, data from the US Bureau of Labor Statistics showed. The modest increase in the inflation numbers was primarily led by a 0.4% jump in the shelter index, contributing to about 90% of the overall price increase in July, while the indices measuring motor vehicle insurance, food, and energy also registered an uptick, climbing 0.1%-0.3% on the month. The rise in the food index was largely due to price increases in dairy, fruits & vegetables, meat, and poultry. On the other hand, the 0.1% month-on-month uptick in the energy index was led by a 0.6% increase in gasoline prices.
Month-on-month percentage change for all urban consumers, seasonally adjusted
Source: Bureau of Labor Statistics (www.bls.gov)
For the year, prices rose by 3.2%, slightly above the 3.0% mark last month but below the median economists' forecast of 3.3% in a poll by The Wall Street Journal. Meanwhile, core CPI, a measure that strips out the volatile food and energy prices, rose 0.2% month-on-month and 4.7% over the previous 12 months, in line with Street expectations.
Another feature of the July inflation report is that while the monthly consumer index has risen moderately over the months, this is the first increase in the annual inflation rate in 13 months. On the other hand, core inflation measured annually fell for the tenth month in a row.
12-month percentage change for all urban consumers, non-seasonally adjusted
Source: Bureau of Labor Statistics (www.bls.gov)
The uptick in the July CPI numbers comes a couple of weeks after the US Federal Reserve raised the benchmark fed funds rate by 25 basis points to a range of 5.25%-5.5% following its policy meeting on July 26th. The fourth hike this year has lifted borrowing costs to the highest since January 2001, and while the rapid rate increases that started in March 2022 have helped cap inflation and eased the labor market somewhat, Wall Street remains divided about the Fed successfully pulling off a soft landing. While the July inflation remains above the central bank's target of 2%, it continues to moderate, and although this has stopped the Fed's hawkish rhetoric for now, it's premature to suggest if policymakers are done raising rates. According to the CME FedWatch Tool, about 88.5% of traders expect the target rate to remain unchanged at 5.25%-5.50% on September 20th, dipping slightly from 89% when the CPI data was announced.
Market reaction to the July CPI data-
The US dollar index (DXY), a basket of six rival currencies against the greenback, slipped 0.03% to end Thursday's session at 102.52. The index is, however, on course to end with the fourth straight weekly gain, the first since January-February this year. Among individual currencies, the euro settled 0.06% higher, the sterling slid 0.34%, and the Japanese yen fell 0.70%.
Treasury yields ticked higher, with the US 2-year Treasury Note edging higher by 3.4 basis points to 4.838%, while the 10-year Note climbed 9.6 basis points to 4.11%, and the 30-year bond yield rose 8.1 basis points to 4.255%.
Source: Marketwatch
US stocks rallied after the release of the July CPI data, with the Nasdaq 100 surging almost 2% in the initial minutes of trading. However, the broader markets gave up all the gains to settle in the negative amid concerns over banking stocks after Moody's downgraded the credit ratings of many US regional banks earlier this week and placed some top lenders on review for a potential downgrade.
The 30-shares Dow Jones Industrial Average closed 0.15% lower at 35176.15, the S&P 500 settled almost flat at 4468.84, and the Nasdaq 100 slid 0.18% to end Thursday's session at 15128.84.
Technical View-
The euro settled at 1.0980 against the greenback on August 10th, 2023, reversing some earlier session gains. The pair is hovering near crucial trendline support at 1.096. If it holds and the pair breaks through resistance at 1.1040, the euro could rally beyond 1.1300 quickly. However, a close below the support could push the single currency toward 1.0840-1.0850 to the dollar.
Buy at the support with a stop and reverse (SAR) at 1.0935. Also, short the EURUSD if the pair closes below 1.0960. Place a stop loss at 1.0990 for a target of 1.0840- 1.0850.
After swinging wildly, Gold futures for December delivery ended Thursday's session at $1948.90 a troy ounce, settling below crucial long-term support at $1954. Unless prices rebound sharply over the next two sessions, the precious metal will likely test the June lows at $1900.60.
Short the yellow metal at $1950-1955 with a stop loss at $1965 for a profit target of $1900-1910.
On the upside, if Gold futures rebound to close above $1955, buy the metal with a stop loss of $1945 and a profit target of $1990-1995.
Our third strategy is on the US 10-year Treasury Note, which closed solidly with more than 2.3% gains at 4.11% following the July CPI report. Despite the Federal Reserve raising interest rates eleven times from April 2022- July 2023, consumer prices remain stubbornly high as the shelter index comprising the cost of renting a residence and the owners' equivalent of renting homes continues to remain solid. In addition, energy prices have mostly held above $80 a barrel this month, which could impact the August CPI numbers due in the second week of September.
From a technical standpoint, the 10-year yield is currently between trendline support @ 3.9% and resistance @ the August highs of 4.21%. While the 10-year yield is likely to hold above the support at 3.9%, a break above the August highs could drive prices to 4.35%, a good level to short the 10-year Treasury futures, with a 10-basis points stop loss for a pullback toward 4.20%.
