Investors continue to stand up to the threat backdrop between Washington and Tehran, currently giving fewer thoughts to potential risks and side effects. The market has obviously grown accustomed to the permanent background noise of crises in the Middle East. Rather, out of fear of missing the rally, more and more investors appear to be stepping onto the sidelines. Following the release of new US inflation data, market participants could breathe a sigh of relief for the time being. Acting as the tipping point for the record-breaking sentiment is the ongoing confidence in diplomacy regarding the Iran war, paired with the hope for monetary easing fantasies. Overall, the tightrope walk between profit optimism and risk awareness is likely to continue shaping trading. In view of ambitious price levels, investors should continue to prepare for potential profit-taking.
US inflation slightly lower than in June – Monetary policy pressure remains
According to the US Department of Labor, US inflation rose by 3.4 percent in July compared to the same month last year, exactly as economists had anticipated beforehand. In June, the inflation rate had been 3.5 percent. Compared to the previous month, inflation increased by 0.1 percent, after having declined by 0.4 percent in the comparison period. The Fed's actual targeted two percent goal thus remains out of reach. The so-called Personal Consumption Expenditures (PCE) price index was most recently at 3.7 percent, continuing to prove stubborn. In addition, investors will have to make do with less information regarding future monetary policy in the future. If it is up to Fed Chair Kevin Warsh, central bankers should speak out less frequently in the future. Consequently, investors are likely to receive fewer monetary policy signals. At the same time, the publication of inflation rates could gain additional weight.
„Fed Watch Tool signals a chance of around 64 percent for another interest rate pause at the September meeting
The CME Group's „FedWatch Tool“ is currently signaling, directly following the release of US inflation data, a 63.9 percent chance that there will be a pause in interest rate hikes on September 16, which is the next scheduled US central bank meeting. This compares to a 36.1 percent probability of a total interest rate hike of a quarter of a percentage point. The so-called interest rate band in the US currently stands at 3.50 to 3.75 percent.
US economic data in focus in the second half of the week
On Thursday at 2:30 p.m., investors will focus on the US producer prices, which could also provide monetary policy impulses. Friday is also entirely dedicated to US retail sales as well as preliminary consumer sentiment data from the University of Michigan.
S&P 500 on a monthly basis
Source: TradingView
