US Inflation Data and Chinese Economic Stimulus | Weekly Overview

American inflation data takes center stage this week, while China takes new measures to boost its economy. Check out this and other news in the Weekly Overview!

Last week, the United States economy showcased its robustness through a series of economic indicators. Service sector activity exceeded expectations, fueling speculation that the Federal Reserve (FED) might find it necessary to increase interest rates this month to temper economic growth and curb potential inflation. However, it’s worth noting that inflation remains below the target set by the Federal Reserve, underscoring uncertainties about the conclusion of the interest rate hike cycle in the U.S.

According to predictions in the CME Group, there is a 93% probability of the current interest rate being maintained. Any deviation from this expectation could potentially trigger substantial volatility in stock markets. The eagerly anticipated Consumer Price Index (CPI) for August, set to be released on Wednesday, could sway these forecasts if it deviates from expectations. Additionally, the next FOMC meeting is scheduled for September 20th, with investors already looking ahead to the November 1st meeting, showing a 60% likelihood of rate maintenance and a 40% chance of a positive adjustment.

Meanwhile, China is displaying signs of economic fragility, with declines observed in both exports and imports. This development casts doubt on the Chinese government’s ability to achieve its target of around 5% GDP growth for the year. To counter these challenges, Chinese authorities are considering stimulus measures.

As part of their economic revitalization initiative, China has eased regulations for insurers to invest in stocks and plans to reduce the foreign exchange compulsory reserve requirement from 6% to 4% by the end of the week.

Oil is once again a cause for concern in global markets. Both Saudi Arabia and Russia remain committed to their plans to decrease oil supply in order to boost commodity prices. Since June, WTI crude oil has seen a 29% increase, climbing from $68 per barrel to $88 today, resulting in direct and indirect inflationary effects on the global economy.

Certainly, this could serve as a catalyst for further interest rate hikes.

Looking ahead to this week, the focus will be on inflation indicators in the United States, with the Consumer Price Index (CPI) set for release on Wednesday and the Producer Price Index (PPI) on Thursday. Additionally, Thursday will also bring us retail sales figures, and on Friday, we’ll receive the industrial production data for August. These indicators collectively carry significant weight in influencing the decision-making process at the FOMC next week.

In the Eurozone, the spotlight falls on the European Central Bank (ECB) meeting on Thursday, where deliberations regarding interest rates will take center stage.

Gold Analysis:

The XAUUSD Gold contract has experienced five consecutive days of decline, primarily driven by the strengthening of the U.S. dollar. This has pushed gold below the 21 and 50-period moving averages once again. Recent fluctuations in gold prices are intricately tied to the U.S. dollar’s movements, which can be closely tracked via the DXY contract. These fluctuations, in turn, are closely intertwined with expectations surrounding future interest rates. Depending on the outcomes of the Consumer Price Index (CPI) release on Wednesday, the XAUUSD contract may exhibit the potential for an upward trend, with a target set at $1982.

Euro/Dollar Analysis:

The EURUSD currency pair recently breached a critical support level represented by the 200-period moving average, aligning with the predictions outlined in last week’s overview. It has reached precisely the support level at $1.068. Today, the pair is showing signs of appreciation in response to the decline in the DXY. While it remains premature to predict a trend reversal, there is little doubt that by the week’s end, we will witness a directional movement. In a positive scenario, positions above $1.08 could be considered for buying, whereas in the event of a negative trend, positions below $1.068 might be explored for selling.


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