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US Inflation in Focus; BOE, SNB and Chinese Data Due This Week Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Mon Sep 11 17 00:11 ET

Financial markets move sideways as the week begins, as investors are gauging the impacts of natural disasters in the US. Hurricane Irma and Hurricane Harvey are expected to hurt the US economy for months, although NY Fed President William Dudley suggested that reconstruction would booth the economy in the long run. As Dudley suggested last Thursday, "the US economy will continue to perform quite well, with slightly above-trend growth leading to further gradual tightening of the US labor market". Such developments would lead to firming of wage growth and gradual rise in price inflation. Dudley's on the monetary policy is more on the dovish side. While noting on Thursday that he expected the Fed to "continue to gradually remove monetary policy accommodation", he added on the the following day that the impact of hurricanes might affect the Fed's rate hike schedule. Separately, hawkish Kansas City Fed president Esther George, a voter next year, reiterated that the US economy is "still operating at negative real interest rates". She added that, with financial conditions easing, "there is more work to be done if we are going to sustain the growth we have seen. We will need to move interest rates to more normal levels". The market is obviously concerned about the economic outlook as well as the rate hike prospect. Besides hurricanes, Trump's failure to implement tax reform and any pro-growth policy since his inauguration and the uncertainty of the debt limit from mid-December are denting hopes of another rate hike by the end of the year.

North Korea Tensions

Geopolitical tensions showed signs of temporary moderation as North Korea had not launched another missile test on September 9, the founding anniversary of the country. However, the US submitted a draft resolution to the UNSC last Friday proposing to add new sanctions against North Korea as the members meet on September 11. The US and Japan have been pushing for harsher sanctions against North Korea, while China and Russia are reluctant to impose strong measures. North Korea has warned that the US has to pay the price for strengthening sanctions.

Macroeconomic Events

For the week ahead, the BOE and SNB meetings would be held Thursday. Both central banks are expected to keep the monetary policy stances unchanged. On the dataflow, the focus is on the US inflation report due Thursday and the retail sales data on Friday. Headline CPI probably improved to +1.8% y/y in August, for +1.7% a month ago. Core CPI might have eased to 1.6% y/y from +1.7% in July. Retail sales probably gained +0.1% m/m in August, from a +0.6% growth a month ago. Excluding autos, retail sales probably expanded +0.5%, unchanged from the July growth. China would release its economic updates on Thursday. Retail sales probably grew +10.5% m/m in August, up slightly from a +10.4% gain a month ago. Industrial production might have gained +6.6% m/m, up from +6.4% in July. Urban fixed asset investment probably expanded +8.2% in the first 8 months of the year, easing from +10.4% in the first 7 months. China FX reserve rose for a 7th consecutive month to US$3.092 trillion in August, an expected outcome as capital outflow eased, following the government's stringent capital control measures, while renminibi strengthened amidst USD's weakness.

Commitments of Traders

With the exception of natural gas, speculators were bullish over the energy complex in the week ended September 5. Net LENGTH for crude oil futures increased +16 248 contracts from a week ago to 382 113. NET LENGTH of heating oil increased +9 916 contracts to 41 375 while net LENGTH for gasoline rose +10 247 contracts to 78 446. Net SHORT for natural gas increased -3 469 contracts to 46 799 for the week.

Speculators were bullish over the precious metal complex last week. Net LENGTH for gold surged +14 251 contracts to 245 298, while that for silver futures gained +10 526 contracts to 64 171. For PGMs, net LENGTH for platinum rose +2 143 contracts to 37 973 while that for palladium added +1 499 contracts to 24 968.

 

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