Markets dominated by recession fears, US CPI in focus :: InvestMacro


Asian stocks were in a sea of ​​red on Tuesday as recession fears and the outbreak of the renewed Covid-19 virus in China stifled risk appetite. Overnight, Wall Street’s major indexes took a beating as investors scurried to safety ahead of inflation data and earnings season in the US. In Europe, stocks are expected to open lower due to energy shortages in Europe and growing caution ahead of key economic data and bank earnings.

In the currency markets, the strong dollar displayed its strength as a safe haven with the Dollar Index (DXY) reaching its highest levels since 2002. Meanwhile, the dream of EURUSD parity came close to reality this morning as prices touched 1.0004 for the first time since December 2002. Looking at commodities, gold remains low and unpopular while oil prices have been affected by demand concerns.

Negative atmosphere and a sense of uncertainty in the financial markets may lead to a further rally in the Dollar while dragging stocks lower. Given how highly sensitive and overreacted markets are to anything about inflation, tomorrow’s pending US CPI report could ignite the fireworks. On the data front, Australian consumer confidence declined for the eighth consecutive month in July. Business confidence has also been disappointing, weighed down by global uncertainty, looming increases, and spiraling inflation. The German ZEW survey of economic sentiment will be published later this morning. The disappointing report could exacerbate the euro’s problems, further weakening the single currency.

It’s all about the US inflation report

Wednesday will see the release of the US inflation report with investors anxiously watching to see if prices will rise again or we may have finally peaked. According to a Bloomberg survey, inflation is expected to rise 8.8% year-on-year in June, compared to 8.6% in May. If expectations meet reality, this will be the fastest increase in consumer prices since the figure of 8.9% in December 1981! Such a development is likely to bolster market bets on sharper increases in Fed rates, eventually injecting dollar bulls with fresh impetus.

Other than US inflation data, it may be wise to keep an eye on Thursday’s weekly jobless claims report. At the end of the week, there will also be a barrage of major releases starting from the latest retail sales, industrial production and consumer confidence that will provide insight into the health of the US economy.

Oil affected by demand concerns

Oil found itself under renewed selling pressure on Tuesday as new Covid-19 restrictions in China and fears of a global economic slowdown weighed on the demand outlook.

The global commodity is down more than 1.5% this morning with the dollar rallying adding pressure and adding to the bearish momentum. While fears of a global recession could keep bulls at bay, oil prices remain weighed down by the opposing forces. On one side of the bearish equation are recession fears and Covid-19 restrictions in China. However, the bulls could get support from ongoing geopolitical risks and tightening market conditions. President Joe Biden is scheduled to visit Saudi Arabia this week during a tour of the Middle East.

Looking at the technical indicators, WTI has the potential to target the psychological $100 level if the bears manage to cross the $102 level. It appears that Brent crude has established a new resistance around $107.50 with a breakdown below $105 indicating a sell-off towards $102.

Commodity Spotlight – Gold

Gold is struggling to heal the deep wounds caused by last week’s brutal sell-off.

The precious metal was choked on by the rising dollar and expectations about the Federal Reserve keeping a strong stance towards raising interest rates. Prices are trading around $1,730 as of this writing, with the next major interest level found at $1,700. The precious metal looks depressed and could be in further pain if the pending US CPI report meets or exceeds market expectations. If prices can break above $1,700, the next major level of interest could be found at $1,680.



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