Watch the inflation numbers in the US! How could the markets respond?

5 mins read
Watch the inflation numbers in the US! How could the markets respond?

The highly anticipated US inflation data will be released today. So, what is happening in the markets? How will the market react to the surprise data? Which levels should gold investors follow? 

Watch the inflation numbers in the US! How could the markets respond?

The most critical data of the week, the US June inflation data, will be announced today at 15:30 Turkish time. The market expectation is that US inflation will be realized at 8.8 percent on an annual basis, renewing the 41-year peak… The previous data, i.e. US May inflation, came in at 8.6 percent, again exceeding expectations and recorded as the highest rate since 1981.

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The US inflation data is quite critical as it sets the direction for the tightening policy to be followed by the US Federal Reserve (Fed). The Fed had brought forward the interest rate hike schedule in order to prevent inflationary risk. The next meeting of the Federal Open Market Committee (FOMC), which sets the Fed’s monetary policy, will take place on July 26-27. In his statements, Fed Chairman Jerome Powell winked at the upcoming meeting and said that a rate hike of 50 or 75 basis points was possible. Looking at the market pricing, we see that a 75 basis point rate hike is gaining strength. If the US June inflation data comes in above expectations, the 75 basis points rate hike is expected to strengthen further.

HOW MIGHT THE MARKET REACT?

If the US inflation data comes in line with market expectations, no sharp movements in the markets are expected, as they have already been priced in. However, if the US data comes as a surprise again, volatility may be experienced in the markets. Risk appetite in the markets may decrease and negative pricing may prevail in world stock market indices. With the data that may exceed expectations, it can be expected that the dollar will strengthen more in the world, that is, the upward movement in the dollar index will accelerate, US bond interest rates will rise and the pressure on gold and silver prices will increase due to the inverse correlation effect.

EURO – DOLLAR EQUALIZED

With the US dollar strengthening against major currencies around the world, the euro has also been depreciating. For the first time since 2002, the EuroDollar parity fell to 1.0000 and equalized in yesterday’s transactions. The depreciation in the Euro continues today. The interest rate policy of the European Central Bank (ECB) is also effective in this decline in the Euro. The expectation that the ECB may act more calmly in interest rate hikes dominates the markets… While the ECB is expected to raise interest rates for the first time in 11 years at its July meeting, it will announce its policy rate decision on July 21 at 15:15 Turkish time.

Analysts expect that the European Central Bank’s lagging behind the Fed in interest rate hikes will depreciate the Euro more against the dollar; EuroDollar parity may decline to 0.90.

The most important and highly anticipated global macroeconomic data of this week will be the US Inflation data to be released today. I think that the global effects of the data to be announced will also be reflected on us as the markets will be open today and tomorrow after the Eid holiday and before Friday, July 15th. In this respect, it should be followed carefully.

US inflation is expected to come in higher than the previous month, continuing the trend that has been going on since mid-2020. Since January 2021, inflation has been above market expectations every month. While the inflation data, which was announced as 8.6 percent on an annual basis in May, is expected to come in at 8.8 percent on an annual basis for June, if it is announced above expectations again, it is thought that the expectations that the Fed interest rate decision to be announced two weeks later will be in the form of a 75bps increase as in the previous meeting will be considerably strengthened, while the 50bps expectations will significantly decline.

FİKRİKADİM

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