Markets Advance Ahead Of US CPI

Asian markets rose on Tuesday after China strengthened support for its struggling property sector. European futures are pointing to a positive open as attention falls on the pending German ZEW Economic Sentiment Index report. In the currency arena, the dollar has weakened on the back of falling Treasury yields with investors digesting the remarks from numerous Fed speakers yesterday.  Regarding commodities, oil is finding support as investors evaluate the demand outlook for China following some measures by Beijing to support its real-estate sector. Gold could push higher in the short term thanks to a weaker dollar and falling Treasury yields. Although the US inflation report is currently in the spotlight, earnings announcements by Wall Street banks on Friday could hijack investor attention.

US June CPI Report in Focus

All eyes will be on the latest US inflation report on Wednesday which has the potential to influence Fed hike expectations. Annual headline inflation is expected to slow to 3.1% in June, a noticeable decline from the 4% reading in May. However, annual core CPI, which strips out volatile energy and food prices, is expected to cool to 5% from 5.3% seen in the prior release. This remains above the Fed’s 2% target but ultimately, signs of cooling inflationary pressures will boost expectations around the Fed’s hiking cycle ending soon after July’s FOMC policy meeting. However, still stubborn inflation prints could fuel speculation around the Fed keeping rates higher for longer.

Commodity Spotlight – Gold

Gold bulls are likely to draw strength from a weaker dollar and falling US Treasury ahead of the US CPI report on Wednesday. Should the report show further signs of slowing inflation, this could fuel speculation around the Fed’s hiking cycle nearing an end. Such a development could boost attraction for zero-yielding gold, potentially pushing prices beyond the $1940 region and higher towards $1960. Should prices remain trapped below $1932, this could open a path back to $1910 and $1900, respectively.