Equity traders are squaring up their positions ahead of the release of the minutes from the latest Federal Reserve meeting. European stock closed lower, and US markets are down. The Fed hiked rates by 0.75% in July, but at the same time, the central bank said it might look to scale back the size of hikes down the line. Since that rate hike, the unemployment rate has fallen to a new two-year low, so that could justify further large rate hikes. On the other hand, CPI and PPI have cooled a little so that might be sign their monetary tightening is working. Stock markets were driving higher this week. Yesterday, the DAX printed a new two-month high, while the S&P 500 registered its highest level since April. It seems as if the slight increase in bond yields has applied pressure to equities. The US10-year yield is edging towards 2.9% so that could be interpreted as the Fed minutes will be on the hawkish side. The US dollar is being boosted by the rise in yields.
Today’s US retail sales were disappointing as the headline reading was 0.0%, undershooting the 0.1% growth that economists were expecting. Not only did the July figure point to muted consumer activity, but the June reading was also revised down to 0.8% from 1%. Workers in the US are feeling the squeeze as inflation is growing at a much faster rate than wages, and that is the sort of thing that could chip away at demand.
UK CPI jumped to 10.4%, from 9.4% and that topped the 9.8% forecast, as a result, the British pound is higher versus most currencies. The Bank of England carried out six interest rate hikes since December last year and given the inflation data, it seems as if further rate hikes are on the agenda.
Industrial metals like copper, silver and platinum are lower for two reasons, firstly, the rise in the US dollar is hurting the assets, secondly, worries about global demand continue to circulate. Goldman Sachs cut its 2022 growth forecast for China to 3% from 3.3%. China is the biggest importer of minerals in the world, so fears of a cooling China are impacting commodities. Oil jumped as the EIA report showed a 7.1 million barrels fall in US stockpiles, which was in stark contrast to last night’s API report as it reported a build in oil and gasoline stockpiles.