Producer prices continue to soar higher
US initial jobless claims fell 375k and continuing jobless claims fell to 2.9 million last week, meaning both beat expectations and provided another tick in the box for the employment recovery.
US producer prices increased at their fastest rate in over 10 years in July. At 7.8% YoY, it’s the fastest pace on record since the data set began in in December 2020, although 33% of the broad PPI read came from higher energy prices. And, as we mentioned in yesterday’s report, that more than likely explains why the US government is trying to pressure OPEC+ to curb oil prices by increasing oil supplies (as higher oil prices simultaneously pinch US consumers whilst feeding into inflationary pressures). Food prices rose +9.5% YoY but, even if we strip food and energy out of producer prices, core PPI still rose at a record high of 6.2%.
The bottom line for us remains unchanged; US inflation is not likely to be transitory and the Fed will be forced to tighten their policy sooner than some may thing.
The US dollar index (USX) rose 0.12% and produced a bullish inside candle. Yet that is not to say its correction has yet complete. This also means that EUR/USD has yet to break above Wednesday’s bullish engulfing candle to confirm the near-term reversal, although our bias remains for a corrective bounce whilst prices remain above the March 2021 low.
US equities extend their rally
Some major equity benchmarks broke to record highs across Europe and the US. The S&P 500 (US500) rose 0.3% led by healthcare and technology stocks. Organon & Co (OGN) was the top performer, rising 11.9% thanks to the company beating Q2 estimates and declaring a dividend payment.
The Nasdaq 100 (USTEC) rose 0.4% although is yet to break to a record high. However, it produced bullish engulfing candle after finding support at its 20-day eMA which suggests a wing low is in place. Whilst not perfect, it is also trading in a potential bull-flag formation which suggests it is attempting to retest and break to new highs.
Germany’s DAX (DE30) index closed above 15,815 resistance for a 2nd consecutive day. Given yesterday’s low has now respected this level as support (so resistance has turned into support) it remains a pivotal level for traders over the near-term. However, another support level for bulls to consider managing risk around is Wednesday’s low of 15,715 which is the bullish engulfing candle which closed to a record high.
UK business is booming according to GDP
As expected, ‘Freedom Day’ – where the UK removed completely lockdown restrictions, has seen a significant boost to UK GDP (gross domestic product) which rose 22.2% YoY in Q3 (up from -6.1% in Q2) and 4.8% QoQ (up from -1.6% in Q2). Estimates for June show GDP expanded by 1% which was the first full month for indoor services and hospitality firms to be fully functional. However, concerns remain that this otherwise strong dataset is yet to fully reflect the rise in COVID-19 cases in July due to the great reopening.
Regardless, the British pound was broadly lower overnight which saw GBP/USD fall -0.4% and produce a bearish engulfing candle, after finding resistance at the 50-day eMA on Wednesday. GBP/JPY also fell -0.4% to a 5-day low and GBP/CHF fell -0.17% and form a 3-bar bearish reversal (Evening Star) below 1.2800 resistance. Therefore, GBP/CHF remains a pair to watch should risk-off sentiment return and force riskier assets lower and force money into safe havens such as CHF and JPY.