Canadian Inflation Surges, European Natural Gas Soars, and Market Trends Dominate
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- Headline Canadian inflation surges above BOC’s 1-3% target range
- Mixed report as core inflation falls to 9-month low
- European Natural Gas skyrockets on fears Aussie labor strikes could disrupt 10% of global LNG exports
Canadian CPI
The Canadian dollar initially rallied after the July inflation rose back the Bank of Canada’s inflation-control target range of 1% to 3%. This was not entirely hot as both core readings remained subdued. This report means that the BOC will remain data-dependent and that the odds of one more rate hike might be growing. Global growth concerns appear to be dominating the macro theme here and that is why the Canadian dollar is softer.
The USD/CAD weekly chart is showing price action is tentatively breaking out above key trendline resistance and the 50-week SMA. If bullishness remains, upside targets include the 1.3675 region. To the downside, the 1.3200 remains critical support.
Gas Prices
European natural gas futures are surging as the risk for Australian LNG workers to strike grow. If talks collapse, the world could see about 10% of global LNG exports at risk. Europe has bolstered their inventories, but a hot end to summer could lead to a surge in cooling demand. Inventories are not a concern right now, but if we get further disruptions and if weather trends in the summer and winter lead to many spikes in demand, we could see natural gas surge significantly higher.
Jackson Hole
We are a week away from Jackson Hole and Wall Street is not expecting any major surprises. Fed Chair Powell will remain upbeat regarding the progress with bringing inflation down. July PCE data to be sticky and keep risk of one more hike on the table. Given the US economic resilience backdrop, the Fed will want to keep optionality here, so an end of tightening will not be signaled.
Oil
Crude prices continue to pullback after both disappointing Chinese industrial production data and the German ZEW survey that showed concerns with recovery are elevated. The oil market might remain tight, but most of the headlines are turning bearish for the demand side. Oil’s pullback might need to continue a while longer before buyers emerge.
Gold
Gold prices are falling as real yields continue to rise. Gold could be stuck in the house of pain a little while longer if the bond market selloff does not ease. The 30-year Treasury yield rising above 2% is a big red flag for some traders. We haven’t seen yields on the 30-year at these levels since 2011, which is making non-interest bearing gold less attractive even as China’s property market rattle markets.
