Three Markets Set to Move Next Week

Last week brought a clear improvement in sentiment across financial markets. The publication of weaker US labor market data (NFP) reduced the pressure on the Fed regarding interest rate hikes. Additionally, there were signs of a potential reopening of the Strait of Hormuz, although uncertainty remains a key issue for energy market investors. This week, the markets’ attention will shift to the July inflation readings from the US, retail sales data, and the publication of key commodity reports. Therefore, investors should primarily pay attention to instruments such as the US500 (S&P 500 futures), GOLD, and OIL (Brent Crude).

US500 (S&P 500 futures)

The US S&P 500 index ended the previous week near record highs. The ultimate test for the sustainability of this breakout will be Wednesday’s US CPI inflation report for July. Price pressures are expected to ease further. Core inflation is projected to drop to 2.4% YoY (the lowest level since March 2021), and the headline reading is expected to come in at 3.3%-3.4% YoY. On Thursday, we will see the PPI index, and on Friday, retail sales data (an expected drop of 0.5% MoM) as well as SEC 13F filings revealing fund positions. Confirmation of the disinflationary trend, coupled with an absence of a hard landing for the economy, will create room for the continuation of the bull market on Wall Street.

GOLD

Gold prices recorded a strong rebound last week on the back of falling US Treasury yields and a weakening dollar. This week, the main drivers of volatility for the precious metal will be the CPI and PPI inflation reports, as well as Thursday’s speeches by Fed members (including Tom Barkin and Beth Hammack). A drop in core CPI inflation to around 2.4% YoY will lower real interest rates, which, from an intermarket analysis perspective, favors the prospects of further gold price increases and an attempt to break through resistance levels. A potential hawkish tone from Fed officials remains a threat. Although gold has stopped reacting nervously to rising oil prices, any news from the Middle East could have immense significance for the precious metal’s quotes.

OIL (Brent Crude)

Crude oil enters the new week with elevated volatility, awaiting further developments in the geopolitical situation in the Strait of Hormuz and the Bab el-Mandeb Strait regions. From a macroeconomic fundamentals perspective, the market is analyzing the latest PPI and CPI inflation data from China, which point to persistently weak demand in the Asian economy. On Wednesday, the monthly IEA and OPEC reports will be published. They will reveal the latest supply and demand balance forecasts for the upcoming quarters and show whether the fuel market is actually as tight as the difference between the price of crude oil and refined products suggests. If the agencies reduce their consumption estimates for the commodity, the oil market may find itself under renewed downward pressure.

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