“With CBA’s stock price where it is, there is a real risk of a glass half-empty mentality being received, and consequently, we are cautious heading into this set of results.”
Inflation test
Traders are bracing for the release of the US consumer price index late Thursday (AEST) which will be a key factor when the Federal Reserve meets to decide on monetary policy next month.
The CPI is projected to climb 0.2 per cent in July, taking the annual rate to 3.3 per cent. The Fed’s preferred measure of core inflation, which excludes food and energy costs, is also expected to rise 0.2 per cent for a second month, which would mark the smallest back-to-back gains in 2½ years.
Evidence of moderate price growth, combined with Friday’s jobs data, could fuel further bets that the Fed will leave rates on hold in September.
The Labor Department reported that the US economy added 187,000 jobs in July, missing expectations of 200,000 jobs. Data for June additions was revised lower to 185,000 jobs, from 209,000 reported previously. Meanwhile, the unemployment rate fell back to a near-record low of 3.5 per cent.
The US 10-year bond yield fell from the highest level since November, while the greenback halted a four-day advance. The surge in yields last week came after Fitch Ratings stripped the US of its top-tier sovereign credit status to AA+.
While Oxford Economics acknowledged that economic data remains solid, it stuck with its call that the world’s largest economy will fall into a recession later this year.
“The data [last] week have done little to change the picture of an economy that remains resilient and a labour market that is cooling, albeit gradually,” said Michael Pearce, lead US economist at Oxford Economics. “That combination leaves the September Fed decision up in the air.”
Fed pause
Futures markets imply an 87 per cent probability that the Fed will leave the Fed funds rate on hold in the 5.25 per cent to 5.5 per cent range next month, assigning just a 13 per cent chance to a rate increase.
In contrast to Oxford’s view, JPMorgan over the weekend scrapped its call for a US recession starting in 2023. The broker now sees continued expansion this year and “modest, sub-par growth” in 2024 as the most likely scenario.
ING economists said the move higher in bond yields and the greenback last week, and funding announcements by the US Treasury, add to the bank’s conviction that the Fed won’t need to raise rates further.
“These market moves in combination with higher volatility are tightening monetary conditions and will also put up mortgage rates and corporate borrowing costs,” said James Knightley, ING’s chief international economist.
Meanwhile, China will release its own inflation data on Wednesday which could show consumer prices dropped in July for the first time in more than two years, intensifying concerns about deflation in the world’s second-largest economy.
Economists expect annual consumer prices dropped 0.5 per cent in July, following a flat result a month earlier.
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