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US Dollar Mixed as Strong Job Data Offset by Ongoing Concerns of Weak Inflation; China CPI Disappoints Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed Aug 09 17 00:09 ET

US dollar was mixed as strong sentiment from another upbeat job data was partly offset by a dovish Fed speaker. US dollar index initially rose to a 2-week high of 93.88 before settling at 93.65, up +0.24%. US Treasury yields climbed higher amidst strong 3-year note auction. The next focus is on the 10 year auction worth of US$23B. The rise is US yields was despite diminished hopes of a Fed funds rate hike in December. CME's 30-day Fed funds futures showed that the market is pricing in a 45.5% chance of a rate hike in December, down from 46.7% a day ago. In the commodity sector, crude oil prices dropped for two days in a row despite a report showing huge decline in US inventory. The increase in gasoline stockpile was surprisingly, though. The front-month WTI crude contract slipped -0.45%, while the Brent contract was down -0.44%, for the day. The precious metal complex climbed higher with the exception of gold. The Comex gold benchmark fell for a 5th consecutive day while the silver contract rose +0.86%, first gain in 6 days.

US Jobs

US' JOLTS report showed that job openings jumped to a record 6.2M in June with unfilled jobs 28% higher than the previous peak in 2007. This signaled tightening in the labor market, raising hopes that the wage pressure would increase as companies increase wages to attract workers. This, together with the employment report released last Friday, evidenced that the labor market has continued to improve. The next focus is the upcoming inflation report due Friday. Headline CPI probably picked up to +1.8% y/y in July, while the core reading stayed unchanged at +1.7%. Ahead of it comes the PPI report on Thursday. The headline reading probably accelerated to +2.2% y/y in July, while the core reading improved to +2.1%, from +1.9% in June. St Louis Fed president James Bullard, a dove and a non-voter this year, suggested that recent inflation outcomes have been "unexpectedly low". He predicted that the price levels are not going to rise much despite further improvement in the job market. Bullard believed that "the current level of the policy rate is likely to remain appropriate over the near term".

Oil Inventory

On the oil market, the industry sponsored API estimated that crude oil inventory slumped -7.84 mmb in the week ended August 4. For refined oil products, gasoline and distillate stockpiles rose +1.53 mmb +0.16 mmb respectively. Today, the EIA report probably shows a -2.72 mmb reduction in crude oil inventory. Gasoline and distillate stockpiles were expected to have dropped -0.13 mmb and -1.48 mmb for the week. The OPEC/non-OPEC brought no good news to the market. The accompanying statement for the two –day indicated that all members "expressed their full support" for the system to monitor the compliance of the output cut "in order to achieve the goal of reaching full conformity". Iraq, the UAE and Kazakhstan, the producers that have relatively low compliance levels, affirmed their commitment to limit their output. The market was unimpressed. Apart from the suspicion over the commitments of these producers, the market is concerned whether the OPEC/non OPEC output cut would offset the declining US demand when the driving season ends in a few weeks' time.

China CPI and Upcoming Data

On the dataflow, China's headline CPI surprisingly slipped to +1.4% y/y in July, from +1.5% a month ago. The market had anticipated a flat reading for the month. PPI inflation stayed unchanged at +5.5% in July, compared with consensus of a rise to +5.6%. In the US session, we expect the non-farm productivity to have gained +0.8% m/m in 2Q17, up from a flat reading in the prior quarter. Unit labor cost probably grew +1.1% during the period, decelerating from a +2.2% growth in the first quarter. In Canada, building permits probably contracted -1.9% m/m in June, following a +8.9% expansions in the prior month. We would also be expecting the RBNZ meeting announcement at GMT 9 pm on August 9.


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