The big risk event this week has seen US price pressures slow as re-opening hotspots ease. The headline rose 0.3% m/m which was one-tenth below the 0.4% estimate, while the core rose a mere 0.1% with analysts forecasting a 0.3% rise. The y/y rates also moderated, to 5.3% from 5.4% for the headline and 4% form 4.3% in the core.

Used car prices – one of the now well-known drivers of higher prices – fell 1.5% which was the largest drop since November 2016 and ended a series of five straight monthly increases. The biggest rises were in energy and food prices which may hit consumer spending going forward.

But many analysts believe prices will remain elevated and sticky. Firms are finding it easier to raise prices, supply bottlenecks are still apparent and housing costs may be the next big driver of higher costs. Bloomberg noted this week that consensus estimates for inflation through Q2-2022 have risen in each of their last three monthly surveys. Wage pressures are also potentially rising now as the demand for workers is outstripping supply.

All eyes will be on the Fed’s updated dot plot which we will see at next week’s critical FOMC meeting.

USD unmoved on softer data

King dollar did move lower after the inflation numbers but regained its poise to close at marginally higher on the DXY. The index is currently trading around the 50-day moving average with long upper and lower shadows on a series of candles over the last few sessions signalling a sense of indirection.

Prices will need to move either above 92.89 or below 92.32 to break out of the current indecision. The markets could be in wait-and-see mode until next week.

Chinese data disappoints

We had a raft of data out of China overnight, which showed that businesses are still grappling with localised lockdowns, supply bottlenecks and high raw material costs. Retail sales grew at the slowest pace since August 2020 and industrial output rose at a weaker pace from July.

The S&P500 is now approaching its trusty 50-day moving average which has acted as firm support on numerous occasions since the pandemic crisis began. Prices have rarely dropped below this indicator for more than a couple of sessions. Similarly, the index hasn’t closed below the 21- day moving average for three days in a row since the mid-May correction.

UK inflation surges, strong UK jobs support GBP

UK CPI jumped up to 3.2% from 2.0% seen in July primarily due to base effects. Supply constraints also added to the mix, but both these factors are set to ease in the medium term as the reopening of the economy sees a move to services from goods. Yesterday’s UK unemployment held steady at 4.6% as the data gave us a glimpse of how the labour market will react to the tapering of the furlough scheme.

GBP moved higher yesterday beyond 1.39 and up to the 100-day moving average. But dollar strength kicked in and pushed prices back near to the 200-day SMA support at 1.3824.

We get US retail sales out tomorrow with Delta variant concerns potentially weighing on sales and the impact of stimulus checks fading.

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