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Weak US inflation serves to keep the US dollar on the back foot, lift equities

Despite another set of poor Chinese economic numbers European markets have seen another positive session. China trade for June showed exports post their biggest decline since 2020, while imports were also weaker than expected.


This all-round weakness could force the hand on whether we see further stimulus measures from Chinese authorities in the coming weeks, which in turn may be helping to underpin today’s resilience, with the DAX and CAC 40 outperforming, while the FTSE100 has lagged.

Basic resources have once again outperformed with copper prices rising to 3-week highs, helping to lift the likes of Glencore, Anglo American and Rio Tinto, while luxury has also done well.

Airlines have also seen a lift after US carrier Delta Airlines posted record revenues and profits for its latest quarter, lifting the likes of IAG, as well as the budget carriers, easyJet, and Wizz Air. Jet2 is also higher after reports that outgoing chairman Philip Meeson bought 15k shares at 1,124p each. 

On the downside house builders have acted as a drag afterBarratt Developments reported that it expects to see a slowing in the pace of housebuilding after a drop in forward sales in Q4. Completions were down from the same quarter a year ago at 17,206, with adjusted profit before tax expected to be in line with expectations. Private reservations were 0.55 down from 0.81 a year ago. With interest rates set to remain high the risk is that looking ahead, forward bookings may well struggle to match the levels seen over the last few years. Taylor Wimpey and Persimmon shares are also underperforming. The news that the number of people missing mortgage payments has risen to the highest levels since 2009 isn’t helping sentiment here either.  


US markets opened higher after strong earnings numbers from Delta and Pepsico and the latest US PPI numbers for June came in at 0.1%, below expectations of 0.4%, while core prices slowed to 2.4% from 2.8%. Weekly jobless claims also slowed to 237k from 249k, reinforcing a continuing goldilocks scenario of slowing prices and a resilient labour market.

In a surprise departure from convention Goldman Sachs indicated that next week’s Q2 results are likely to be worse than expected. Over the past few weeks there have been various rumblings that we may see a sharp fall in trading revenues, as well as hinting that might see some significant markdowns in respect of its GreenSky and real estate businesses. This has seen the shares come under pressure and has created further anticipation ahead of next Wednesday’s data release, and more importantly its guidance for the rest of the year.

Delta Airlines shares have risen to their highest levels in 2 years after reporting record revenue and profits for Q2, on the back of a strong increase in summer bookings and lower fuel prices. Revenues for Q2 came in at $15.6bn while profits rose by 86% to $2.68c a share, with the airline boosting its full year guidance for profits to between $6 to $7 a share. The carrier said it expects to see Q3 revenue growth of between 11% and 14%, as summer bookings continue to improve. United Airlines and American Airlines are also higher on the back of a positive read across.

Pepsico shares are also seeing a strong start after reporting a strong set of Q2 numbers, which has prompted the drink and snacks brand to raise its full year guidance. Q2 revenues came in at $22.32bn, a rise of 13%, while profits beat forecasts at $2.09c a share. For the full year, the company said it expects to see a 10% increase in organic revenue growth.

Disney shares are higher, after announcing that CEO Bob Iger has had his contract extended for another 2 years.


The US dollar has continued to look soft, with further weakness in 2-year yields, now down almost 50bps from their peaks from earlier this month, after US PPI also came in weaker than expected, following yesterday’s downside miss to US CPI. 

The breakouts seen in the past 24 hours against the Japanese yen, euro and the pound appear to set the scene for further US dollar weakness in the coming days, which should translate into better news for these countries in their fight against inflation as their currencies strengthen.

Consequently, this should see the euro head towards 1.1400, the pound towards 1.3300, and the yen towards 135.00. The Australian dollar is also performing well and could see a move towards 0.7000, on a breakthrough the 0.6900 area.

The pound has shrugged off today’s disappointing economic numbers for May. While the economy didn’t contract as much as feared, slipping by -0.1%, we also saw contractions in manufacturing and industrial production of -0.2% and -0.6% respectively. Despite the disruption caused by the extra bank holiday the services sector performed better than expected, coming in at 0%, showing that despite the challenges currently facing the economy it has continued to hold up reasonably well.  This would suggest that the Bank of England still has room to push rates up further with 25bps already priced in for August and potentially 50bps if next week’s CPI doesn’t show a material slowing.


The decline in yields and the weakness of the US dollar is giving gold prices a new lease of life, breaking above resistance at the 50-day SMA at $1,953 an ounce as it looks to retest the June highs at $1,985.

The rise in oil prices this week continues to be tempered by concern over Chinese demand, after this morning’s disappointing trade numbers. We can clearly see that the Chinese economy is struggling, however the weakness of the US dollar is helping to keep Brent reasonably well supported near to two-month highs.


Yesterday’s publication of US inflation data saw headline prints come in softer than had been expected, with the consequent effect that the greenback found itself under sustained pressure, despite the Federal Reserve still being widely expected to hike interest rates in less than two weeks’ time. The Kiwi Dollar saw the highest levels of price action with one day vol against USD printing 14.08% compared to 10.86% on the month, whilst the Aussie Dollar wasn’t far behind either with readings against USD of 13.24% on the day and 10.59% on the month being recorded.

Yesterday also saw the publication of the latest WASDE report from the USDA. Whilst impact was seen across all grains with the data concluding that despite the year’s dry weather, an increase in planted acreage would serve to mitigate the situation. Soybean prices fell as much as 3% before initiating a modest recovery, with one day vol on Soybean printing 39.12% versus 33.92% for the month.

The Hang Seng continued to move higher on Wednesday with those hopes of stimulus measures still lending support. The index is now closing in on a test of three-week highs, with US Dollar weakness arguably lending more support here, too. One day vol on the index hit 26.3% against 22.81% for the month.

And two heavyweight constituents in CMC’s proprietary basket of gaming stocks – NVIDIA and NetEase – both found outsized support on Wednesday for different reasons, helping deliver a reasonable uptick for the basket’s underlying value but boosting price action on the way. One day vol stood at 36.67% against 29.59% for the month.


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