✅ Daily Market Analysis - THURSDAY AUGUST 10, 2023

10 Ogo 2023

Key News:

USA - Core CPI (MoM) (Jul)
USA - CPI (YoY) (Jul)
USA - CPI (MoM) (Jul)
USA - Initial Jobless Claims

Stock Futures Ascend as Earnings Await and CPI Looms

As the night unfolded, stock futures embarked on a steadfast ascent, following the delicate incline exhibited by key benchmark indices. The investment community remained poised on the precipice, meticulously tracking the impending cascade of earnings reports, all the while casting a vigilant eye on a pivotal consumer price index (CPI) proclamation that held the potential to wield a profound impact on the trajectory of forthcoming interest rates.

However, the Dow Jones Industrial Average found itself navigating a dip, navigating the currents of a persistent slide within the tech sector. This descent was notably fueled by a dip in the fortunes of chip stocks, prompting investors to exercise prudence in their bullish aspirations, particularly as the anticipation of Thursday's inflationary revelation loomed large.

Delving into specifics, the Dow Jones Industrial Average encountered a measured contraction, reflecting a modest 0.5% decrement, which translated into a 191-point retreat. Meanwhile, the Nasdaq experienced a more pronounced downturn, marked by a substantial 1.2% dip, while the S&P 500 also participated in the retreat, conceding 0.7% of its value to the market's intricate dynamics.


NASDAQ indices daily chart


SPX indices daily chart


China's Impact on Risk Sentiment: Unraveling the Deflationary Thread

China's pivotal role in steering the risk-off sentiment across global markets cannot be overstated. The aftermath of lackluster trade data, witnessed a day prior, was further compounded by the release of yesterday's inflation metrics. These metrics served to solidify China's entry into the realm of deflationary pressures, unfurling a complex narrative that bears significant implications for the global economic landscape.

The year-on-year trajectory of the Consumer Price Index (CPI) unfurled a retreat from its previous station of 0.0% to a stark -0.3%. This resonated in tandem with the Producer Price Index (PPI), which emerged at a formidable -4.4%. The emergence of this deflationary landscape finds its origins in the subdued domestic demand that has cast its shadow over the Chinese economic landscape. Foremost among the culprits is the persisting turbulence in China's property market, a challenge that continues to wield substantial influence.

Adding fuel to the fire, concerns found additional fodder in the form of missed bond payments from Country Garden, further illuminating the fragility of the financial sector. Notably, the potency of the US dollar has experienced a modest tapering, a phenomenon partially attributed to the People's Bank of China (PBoC) asserting a more robust USD/CNY rate. This strategic move by the PBoC has contributed to the US dollar's diminished vigor. However, it's crucial to recognize that the steadfast reverberations of rate differentials, which have lain dormant for over a decade, stand poised to perpetuate the pressure on the Chinese yuan (CNY).

In this intricate interplay of financial intricacies, China stands as a pivotal player, etching its influence on the broader global narrative. The implications of its economic trajectory ripple across continents, underscoring the connectedness of today's financial landscape.


USD/CNY daily chart

In the intricate weave of global dynamics, the US dollar stands resolute, ready to maintain its robust stance. As the shadows of risk aversion lengthen, particularly in anticipation of today's unveiling of the US Consumer Price Index (CPI) data, a potential worst-case scenario emerges. Should the CPI reading ascend significantly beyond expectations, the aftermath could entail an additional downward push on global equity markets. However, prospects for such an outcome appear dim, as the emergence of a markedly stronger CPI figure seems improbable, particularly considering the incipient trend of rental disinflation.

Simultaneously, gold prices found themselves tracing a path to a one-month nadir on Thursday. The precious metal bore the brunt of a substantial downturn over the preceding week, bending beneath the weight of a resurgent dollar and mounting yields. As aversion to risk amplifies, traders are propelled toward the allure of the dollar, their actions rooted in the belief that US interest rates will remain perched at elevated levels for an extended span through the remainder of the year. This pattern illuminates the intricate dance of market sentiments, where the gravitational pull of the US dollar and the perceived trajectory of interest rates exert their gravitational influence, shaping the complex tapestry of financial maneuvers.


XAU/USD daily chart

Gold's Slide Fueled by Anticipations of Elevated CPI and Dollar's Rise

The recent downturn in gold's fortunes finds its propulsion in the prevalent anticipation surrounding the US Consumer Price Index (CPI) inflation for July. The prevailing sentiment was one of expectation for a modest increase, cementing the CPI at a persistent level significantly above the Federal Reserve's designated target range.

This lingering specter of persistent inflation plays a pivotal role in steering the actions of the Federal Reserve. The trajectory of such indications provides a heightened impetus for the central bank to maintain a posture of high interest rates and stringent policies. These circumstances cast an ominous cloud over assets like gold that lack yield, making them appear less attractive within the financial landscape.

The allurement of an augmented CPI reading didn't merely impact the precious metal; it also bestowed a renewed vigor upon the US dollar. This evolution established the dollar as the preferred sanctuary for safeguarding investments, eclipsing the allure typically associated with gold. The greenback's trajectory inched towards its five-week zenith, while the 10-year US Treasury yields held close to their peak for the year 2023.

Simultaneously, in a distinct twist of events earlier in the week, select Federal Reserve officials voiced their support for additional hikes in interest rates, citing the unrelenting grip of inflation. This vocal stance from within the central bank resonated against the backdrop of its prior indications, which hinted at the possibility of at least one more interest rate escalation within the current year. In this tapestry of interconnected events, the global financial landscape remains in a state of intricate flux, where inflation readings and central bank maneuvers influence the trajectory of assets and market sentiments.


US Consumer Price Index

Enduring Higher Rates: Gold's Performance and Precious Metals' Struggles

The prevailing anticipation centers on the prospect of the bank maintaining elevated interest rates over an extended duration, a situation that casts a shadow over gold's potential for substantial upswings across the year. The enduring presence of heightened interest rates magnifies the opportunity cost linked to investments in gold and other akin non-yielding assets.

In the midst of this environment, other precious metals are also navigating the tempest of significant losses for the week. Among them, platinum bore the brunt of a nearly 4% descent, while silver bore the weight of a 4.1% drop. These precious metals find themselves entangled in the same web of financial dynamics, where the pull of interest rates and the allure of competing assets contribute to the delicate dance of their market performance.