Week in a Glance: US Inflation, Powell and the Reporting Season

From the macroeconomic statistics and general importance viewpoint, the key event of the last week can be considered the publication of inflation statistics from the United States. We are talking about both consumer and industrial inflation. Markets were hoping for signs that inflation was starting to slow down. To a large extent, such expectations were associated with the comments of a number of FRS officials, who stated about the anomalousness and temporality of the latest inflation data.

But the reality was quite different from expectations. Instead of lowering inflation, we have seen the inflationary spiral continue to unfold. Consumer inflation came out much higher than forecasts and the previous value, reaching 5.4% (yoy). Industrial inflation, in general, showed the highest growth rate in the entire history of observations, 7.3% (yoy).

After such data, all attention was turned towards the speech of Powell, who was reporting to Congress. The fact that inflationary processes are uncontrollable is too obvious not to notice it. Nevertheless, Powell continued to bend the old line: yes, there is inflation, yes, it is much higher than the Fed's target, but the Central Bank will not do anything about this yet - it will dissipate over time. We have already written about the reasons for this position, we only note that it was difficult to demonstrate a more “dovish” position in the current realities.

Formally, such a position plays into the hands of buyers in the stock market and sellers of the dollar in the foreign exchange market. But in reality, this position does not negate the fact of inflation and the need to tackle it, if not today, then tomorrow. Therefore, our recommendation remains unchanged: in the medium term, we buy the dollar and sell on the US stock market.

Moreover, the latter, according to the results of the week, even despite the ultra-soft position of Powell, despite the excellent start of the reporting season, despite the good statistics from the USA, could not demonstrate growth. And if prices do not rise on a powerful positive, then this is a clear sign of their imminent collapse.

The oil market last week clearly demonstrated how quickly and for no particular reason, unrestrained growth turns into despondency and a decline in prices. Although, probably, everyone who needed to know knew about the unscheduled OPEC + rally prepared on Sunday and the decision to increase oil production by 0.4 million b / d from August. So, medium-term oil sales are another promising trade idea, in our opinion.

The current week promises to be much quieter than the previous one, but the ECB meeting, coupled with the reporting season approaching its peak, is unlikely to let you breathe out quite calmly.