Forex: Gold once again ushered in the "night of life and death"!

At 8:30 p.m. Beijing time on Thursday, the United States will release its July CPI data.The current market expects it to rise by 3.3% year-on-year, an acceleration from the previous value of 3%This is the first year-on-year increase since June 2022.The month-on-month growth rate was the same as the previous valueCore CPI growth rate and quarter-on-quarter growth rate remained unchanged from the previous value, at 4.8% and 0.2% respectively.

If these expectations are indeed met, the market will continue to accept the disinflationary story and continue to expect a soft landing, or even no landing. 

In fact,Many analysts are lowering the probability that the United States is about to enter a recessionEven Federal Reserve economists are no longer predicting a recession.

And all of this is based on the expectation that inflation will continue to move towards the 2% target,If there is a slight deviation in tonight's data, the market may usher in another "bloody storm".

Is the inflation wave coming again?

With the end of the favorable base effect and the recent surge in oil and gasoline prices,The risks in tonight's CPI data may be more tilted to the upside。  

The "inflation forecast" issued by the Cleveland Fed, which has been reliable in predicting actual CPI data, also issued a warning about the data to be released tonight.

Forecasts from the Cleveland Fed show that,Core CPI inflation is expected to rise 0.4% month-on-month in July.This is much higher than market expectations, and it will continue toYear-on-year increase of 4.9%, up from 4.8% in June. More importantly, they alsoIt is predicted that the core CPI will rise by 0.4% month-on-month in August.。

The Cleveland Fed also forecasts that headline CPI will rise by 0.4% month-on-month, also well ahead of market expectations, with year-on-year growth rising to 3.4%. More importantly, they also predict that headline CPI growth will accelerate to 0.6% in August, up 3.9% year-on-year. In the official data, headline CPI inflation rose only 3% year-on-year in June, which would mean, if the Cleveland Fed's forecast is correct,The second wave of inflation is approaching。 

Why is there such a big gap between market expectations and the Cleveland Fed's forecast?

Analysts explain that...The Cleveland Fed's inflation forecast also takes into accountBrent crude oilChange in priceThe latter rose by 16% in July. Therefore, this could lead to higher forecasts, which market analysts have somehow ignored.

Research by Bespoke Investment Group predicts that in the Fed's "last mile" battle,The month-on-month growth rate (monthly rate) of CPI data will become increasingly importantAnd concluded that,You need to see a month-on-month increase of 0.2% or less to see inflation moving into the 2-3% range.

Their research shows that,With a month-on-month growth rate of 0.2% unchanged, the overall CPI will accelerate again to 4.04% in December 2023, before slowing to 2.92% in March 2024. 

Lots of bad trends?

In tonight's CPI data, some inflation trends look ominous.

The first thing to do isEnergy price，WTI crude oilThe price of Brent crude has risen 16 per cent since its low in late June, up more than 20 per cent from its low in late June and marking the sixth consecutive week of gains last week. Average US petrol prices, meanwhile, are up about 35 per cent from their low in December to their highest level since October 2022. 

In terms of oil geopolitics,Russia and Saudi Arabia both need higher oil pricesThey are currently reducing their supply to the market, which even needs to keep oil prices above $80 a barrel to balance the domestic budget.

Richard Bronze, co-founder of data provider Energy Aspects, said that due to production cuts in major exporting countries, better-than-expected global demand, and relatively low global inventories, heCrude oil prices are expected to continue "all the way up"。 

In addition,Russia's recent withdrawal from the Black Sea grain deal has caused wheat prices to surge again and put new pressure on global grain pricesThe United Nations' Food and Agriculture Organization said last week that the global food price index rose 1.3% month-on-month in July, the second increase since July 2022, due to the collapse of the Black Sea agreement. 

In addition, while inflation appears to be moving in the direction the Federal Reserve wants, it is also concerned about another factor -Wage growth appears to be moving in the opposite direction.

Analysts say that US companies have been forced to bring some overseas supply chains back home, a process that is sure to raise prices and cause some supply chain disruptions. The localisation process has encountered an entirely different problem -The US labor market is in short supply, in part due to demographics (retired baby boomers) and stricter immigration policies (deglobalization).Analysts warned:

"In fact, labor shortages in the United States could lead to sustained higher wage growth, especially if unions begin to negotiate higher wages, as the recent United Parcel Service (UPS) strike demonstrated. This would create the possibility of a wage-price inflation spiral similar to that seen in the 1970s - exactly what the Bank for International Settlements (BIS) warned in a recent report."

But it's not all bad news in the CPI sub-items.The sub-items of used car and housing prices may decline somewhatThe Mannheim Used Car Value Index is down more than 11% from its March peak, while the used car component of the CPI is down only 5% from its recent highs, said Liz Young, head of investment strategy at SoFi.The former typically leads by about two months, indicating that the used-car component of the CPI index will cool further. 

For the housing component, the San Francisco Fed said, "Our baseline projections suggest that...Housing inflation will continue to slow year-on-year until the end of 2024, and may even turn negative in mid-2024”。

In addition, as early as 2019, Powell said,The most important driver of actual inflation is inflation expectationsIn June, U.S. consumers' inflation expectations for the coming year fell for the third consecutive month to 3.8 percent, the lowest level since April 2021.

Bank of America forecasts that under different month-on-month growth rates, the overall CPI growth rate will increase year-on-year

Gold dollar awaits CPI trial

At present, gold is "copying" the trend before the release of CPI data last month, and waiting for the "judgment" of CPI data with the dollar.

According to FXStreet analysts,An unexpected upswing in headline and core CPI could revive expectations of a Fed rate hike, triggering a fresh rally in the dollar and Treasury yields and adding to the pain for gold, opening up space to test levels below the $1,900 mark, which is the key support for gold.

In addition, only lower-than-expected US CPI data can save gold buyers from monthly lows. The first upside target for gold prices may be at the integer level of $1,930. If it breaks through here, the 50-day moving average of $1,944 will be the next strong resistance, and the next important upside obstacle will be the psychological level of $1,950. 

Oanda analyst Ed Moya said,If gold prices fall below the June low of $1,893, it could be a very bearish signalWell, there are two reasons. First,This will determine whether the trend of gold prices on July 20 is a reversalHe regards the previous rally as a correction, indicating that there is broader room for gold prices to fall.A fall below the 200-day and 233-day moving averages (around $1,868 at the lower end of the range) could be seen as another very bearish signal.

It is worth noting that recentlyThe US stock market has seen a major bearish pattern, and it is necessary to be vigilant against pullback pressureBut that could boost demand for gold as a hedge.

FXTAccording to foreign exchange, the performance of global stock markets in August and September since 2000 can be found to be mostly down, which is one of the reasons why gold prices usually perform better in August.