Brace yourselves for the inflation print…

Thoughts of the Day

Watch out for upcoming US CPI and PPI data, crucial for market sentiment ahead of the Fed’s policy meeting. Expectations are for a rise in headline inflation but a moderation in core inflation. If data meets or falls below expectations, the Fed is likely to keep interest rates unchanged to allow previous hikes’ impacts to surface.

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Day Ahead

The US Consumer Price Index is expected to show that prices rose +3.6% Year-on-Year, up from +3.2% in July. The core index is expected to moderate to +4.3% YoY from +4.7%.

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What Happened Yesterday

Market Movements as of New York Close 12 Sep 23

The UK unemployment rate rose slightly to 4.3% in July as expected from 4.2% in June. The employment change for June showed that -205k jobs were taken away from the economy (vs -185k expected), increasing from -66k in May. The GBP did not react to the release of the labour date.

The US Treasury Yield curve widened to 0.71% as the US 2 year bond yield rose +0.01% to 4.98% while the 10 year bond yield fell -0.02% to 4.27%.

The US stock futures stuck within a small range during the Asian trading session before drifting downwards when the London trading session began. The S&P 500 futures were down 0.22% on the day before the New York session began.

The US stock market opened lower from Monday. The US stock market then tried to go higher in the early half of the New York session but took a turn for the worse after Apple (-1.71%) announced its new iPhone 15 series that did not offer much improvement over the iPhone 14 series. Consequently, the S&P 500 closed the day lower at -0.57% (intraday high: -0.01%, low: -0.68%) the Dow Jones slipped -0.05% on the day (intraday high: +0.54%, low: -0.40%) while the Nasdaq fell -1.11% (intraday high: -0.09%, low: -1.18%).

Oracle (NYSE: ORCL) also weighed down risk sentiment, finishing -13.50% lower on the day as it posted poor revenue for its first fiscal quarter ($12.45 billion vs $12.47 billion expected) and provided weaker than expected guidance for the second fiscal quarter (net income of $1.30 to $1.34 per share and 5% to 7% revenue growth vs analyst’s estimate of $1.33 and 8% respectively).

The crypto market saw a short squeeze yesterday despite the recent selloff due to the offloading in FTX assets. Bitcoin rose +2.6% on the day while Ether jumped +2.7%.

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Headlines & Market Impact

Japan’s Aug wholesale inflation slows as cost pressures ease

Notable Snippet: Japan’s annual wholesale inflation slowed in August for the eighth straight month, data showed on Wednesday, offering some relief for households and retailers hit by past sharp rises in raw material imports.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2% in August from a year earlier, matching a median market forecast.

It slowed from a revised 3.4% rise in July, and is now off a peak 10.6% year-on-year surge hit in December last year, data by the Bank of Japan (BOJ) showed.

“While crude oil prices remain high and yen falls continue, wholesale inflation is slowing … and could post a year-on-year decline in the fourth quarter,” said Toru Suehiro, an economist at Daiwa Securities.

“The price declines seen for some goods can’t be ignored” as it could affect households’ perception of future price moves, he added.

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Government shutdown fears cloud legislative agenda as House returns to session

Notable Snippet: Concerns over a potential government shutdown have reached a fever pitch as the House of Representatives returns to session this week with little progress to show on budget negotiations.

Government funding is set to expire on Sept. 30, leaving less than a dozen working days for both chambers of Congress to pass all 12 appropriations bills and President Joe Biden to sign. The Republican-led House has only managed to pass one.

Deep divisions remain between the parties with Republicans looking to implement large spending cuts unlikely to pass in the Democratic-controlled Senate. The White House last month called on Congress to pass a short-term continuing resolution to keep government funding at its current levels while negotiations lag on.

The House Freedom Caucus, which includes the most conservative members of the Republican Party, is looking to cut spending for the fiscal year 2024 to $1.47 trillion, or around $120 billion under what Biden and House Speaker Kevin McCarthy agreed to in May when the two sides last sparred over budget talks. The demand is a non-starter for both the White House and Senate leaders, including Minority Leader Mitch McConnell.

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Biden impeachment inquiry gives White House a fight it’s ready for

Notable Snippet: The White House’s oversight and investigations war room finally got the battle on Tuesday that they’d been arming themselves for.

House Speaker Kevin McCarthy’s announcement that he has directed GOP-led House committees to open an impeachment inquiry into President Joe Biden was the long-anticipated retribution that White House aides had been waiting for, after House Democrats twice impeached Donald Trump during his term in office.

Ever since Republicans retook the House majority last year, the White House has been building a team of legal experts and spokespeople to counter the congressional inquiry launched into the president and his son, Hunter Biden.

And in recent months, as the calls for impeachment grew louder on the far right of the GOP, the new White House war room has responded by publicly refuting Republican accusations and amplifying the voices of impeachment sceptics within the GOP caucus.

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Phan Vee Leung
CIO & Founder, TrackRecord