✅ Daily Market Analysis - TUESDAY AUGUST 08, 2023

Key News:

USA - FOMC Member Harker Speaks
USA - Exports
USA - Imports
USA - Trade Balance (Jun)
USA - EIA Short-Term Energy Outlook

Wall Street commenced the week on a positive note, recovering from initial volatility that followed a relatively lackluster performance during the previous week. Investors took the opportunity to establish positions in anticipation of the eagerly awaited US inflation report, scheduled for release on Thursday.

In the preceding week, major stock indices experienced declines as investors capitalized on the chance to lock in profits after several months of consistent growth. This strategic move was prompted by apprehensions concerning economic data, mixed corporate earnings outcomes, and the ascending trajectory of Treasury yields.

The year 2023 has witnessed a robust upswing in US stocks, highlighted by the remarkable performance of the benchmark S&P 500, which has achieved an impressive 17% rise year-to-date. This upward surge can be attributed to buoyant sentiment surrounding advancements in artificial intelligence and expectations of a controlled deceleration in the world's largest economy.

S&P 500 daily chart

The approaching week directs considerable attention towards the entertainment sector, as significant players like Walt Disney (NYSE: DIS), News Corp (NASDAQ: NWSA), and Fox (NASDAQ: FOX) prepare to unveil their reports. The spotlight is notably on Disney, given a string of less-than-expected film releases and difficulties faced by its theme parks, which have spurred apprehensions about its overall performance.

Walt Disney Company stock daily chart

Despite a marginal dip observed on Monday, oil prices are holding steady near their highest levels since mid-April. This trend is a direct consequence of the recent announcement by prominent oil producers Saudi Arabia and Russia. Their declaration to prolong output reductions for an additional month has been orchestrated to further constrict global markets and maintain supply-demand equilibrium.

This week, the focal point rests on the forthcoming US consumer price data, scheduled for unveiling on Thursday. These figures are anticipated to provide valuable insights into the potential trajectory of the Federal Reserve's monetary policies. In the aftermath of a recent employment report that reignited concerns about prolonged elevated interest rates, this impending dataset is poised to wield substantial influence over the central bank's strategic decisions.

Expected for the month of July, the consumer price index is projected to exhibit an uptick, reaching an annual rate of 3.3%, surpassing the previous month's 3.0%. On the contrary, the core figure, which excludes volatile components such as food and energy, is foreseen to display a deceleration, settling at a year-on-year rate of 4.7%.

US Consumer Price Index

The forthcoming inflation perspective will reach its culmination with the release of producer prices on Friday, where the core Producer Price Index (PPI) is anticipated to exhibit a year-on-year uptick of 2.3%.

After a relatively subdued schedule on Monday, the current day boasts several appearances by Federal Reserve officials, including remarks from Philadelphia Fed President Patrick Harker. Simultaneously, the corporate landscape is entering the final phase of the second-quarter earnings season. As per FactSet data cited by CNBC, over 84% of S&P 500 companies have already reported, with approximately four-fifths of these surpassing Wall Street's expectations.

A notable event this week centers around the US Treasury's quarterly refunding process, involving auctions of three, ten, and thirty-year US Treasuries worth a combined $103 billion from Tuesday through Thursday. Although instances of underwhelming Treasury refunding are rare, usually characterized by consistently low bid-to-cover ratios or analogous metrics, there's a potential risk that dealers might incorporate certain concessions into bond prices ahead of the auctions. This preemptive strategy could help maintain stability in US yields, contributing to a multifaceted investment landscape.

Considering the current landscape, the probability of a substantial US Dollar decline facilitating a rally in other global currencies this week appears limited. Additionally, geopolitical developments in the Black Sea region and their potential repercussions on food and energy prices could leave investors cautious about fully embracing disinflationary trends. Presently, it seems improbable that statements from Fed speakers will exert substantial influence on the dollar's valuation. Consequently, the US Dollar Index (DXY) is projected to continue fluctuating within a range of 101.80 to 102.80.

US Dollar Currency Index daily chart

In today's trading session, gold prices saw a marginal decline, further extending the losses observed in the previous session. This decrease was linked to the ongoing uncertainty surrounding the Federal Reserve's forthcoming moves, compounded by anticipations of a substantial inflation reading for the week. These combined elements played a role in bolstering the US dollar's position and elevating Treasury yields.

XAU/USD daily chart

In today's trading session, gold prices saw a marginal decline, further extending the losses observed in the previous session. This decrease was linked to the ongoing uncertainty surrounding the Federal Reserve's forthcoming moves, compounded by anticipations of a substantial inflation reading for the week. These combined elements played a role in bolstering the US dollar's position and elevating Treasury yields.