Markets await Wednesday’s inflation reading. Still high but anticipated to cool down.

　　

Stocks retreated on Tuesday, as a downbeat outlook from a giant chipmaker, Micron, added to recession fears. Investors were unwilling to make any risky moves before Wednesday’s pivotal inflation reading, which is forecasted to cool a bit while remaining at high levels. The report will come on the heels of recent jobs figures underscoring slid wage growth and US productivity data highlighting another surge in labour costs that could further complicate the Federal Reserve’s decision to tame inflation. Timing the peak of inflation is difficult, especially after June’s CPI print turned out to be hotter than expected. It’s also worth noting that Bitcoin resumed its slump, ending a four-day winning streak as volatility continued to whipsaw the crypto world.

The benchmark, S&P 500 and Dow Jones Industrial Average both slid on Tuesday, amid undermining risk sentiment ahead of the release of a key consumer index. Seven out of eleven sectors stayed in the negative territory, as Consumer Discretion and Information Technology performed worst among all groups, fell with 1.54% and 1.00% losses respectively on Tuesday. However, Energy and Utilities sectors outperformed all the other groups, rising 1.77% and 1.06% respectively for the day. The Dow Jones Industrial Average declined 0.2%, Nasdaq 100 dropped 1.1%, and the MSCI world index fell 0.5%.

Main Pairs Movement

US dollar changed a little bit down on Tuesday, as thin summer trading and risk appetite dwindled ahead of critical inflation figures that could offer clues on how hawkish the Federal Reserve will be in its interest rate hike in September. The DXY index had drifted lower from the start of the trading session, but then rebounded to oscillate in a range of 106.1 to 106.4 level as stock markets slid on profit warnings, inflation concerns and data showed US worker productivity fell sharply in the second quarter.

The GBPUSD remained almost unchanged for the day. The cables edged higher amid some greenback selling in the first half of Tuesday, then faced selling pressure and lost all the gains earlier as pessimism in UK economic data and the hawkish stance of the Fed. Meanwhile, EURUSD attracted fresh transactions and touched a daily high level of nearly 1.025 as a weak US dollar across the board during the Asia trading session, then corrective pullback to 1.021 ahead of the CPI index. The pairs advanced with a 0.16% gain on a daily basis on Tuesday.

Gold surged on Tuesday, as global recession concerns weigh on investors’ sentiment and benefit safe-haven metal. XAU/USD touched a one-month high of US$1800 during the US trading session as bad news was announced from US stock markets and investors remained cautious ahead of the CPI report.

Economic Data

Currency	Data	Time (GMT + 8)	Forecast
USD	Core CPI (MoM) (Jul)	20:30	0.5%
USD	CPI (YoY) (Jul)	20:30	8.7%
USD	Crude Oil Inventories	22:30	0.073M