Cooler producer price pressure in the U.S. fueled Fed rate cut speculations and inspired risk-taking in the markets.

How did your favorite assets trade on Tuesday?

Let’s look at the major headlines that took the spotlight:

Headlines:

• Westpac: Australia consumer sentiment index improved from 82.7 to 85.0 in August on easing concerns of further RBA rate hikes
• Australia wage price index for Q2 2024: 0.8% q/q (0.9% expected and previous)
• NAB: Australian business confidence fell from a downwardly revised 3 to 1 in July
• Japan preliminary machine tool orders gained by another 8.4% y/y in July after a 9.7% y/y increase in June
• U.K. claimant count change for July: 135K (14.5K expected, 36.2K previous); Unemployment rate eased from 4.4% to 4.2% in June; Average earnings decelerated from 5.7% to 4.5% in the three months to June
• The International Energy Agency (IEA) kept its global oil demand forecasts steady in 2024 but lower in 2025 on weak China outlook
• German ZEW economic sentiment for August: 19.2 (32.6 expected, 41.8 previous)
• Euro Area ZEW economic sentiment plummeted from 43.7 to 17.9 (vs 35.4 expected) in August
• China new bank loans contracted from 2.13T CNY to 260B CNY in July
• U.S. NFIB small business optimism index rose from 91.5 to 93.7 in July, the highest reading since February 2022
• U.S. producer price index for July: 0.1% m/m (0.2% expected and previous); Core PPI eased from 0.3% to 0.1% (0.2% expected); Annual PPI slowed from 2.7% to 2.2%
• FOMC voting member Raphael Bostic says a rate cut “is coming” but he needs “a little more data” before supporting lower interest rates
• The API reported an inventory draw of 5.205 million barrels against estimates of a 2 million-barrel dip for the week ending August 9

Broad Market Price Action:

Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView

The return of Japanese traders from their holidays didn’t bring much action to major assets in the Asian session, with markets mostly trading in tight ranges as everyone awaited more significant data releases.

Things picked up in the U.S. session, though. Weak U.S. PPI reports fueled speculation that the Fed might cut interest rates sooner rather than keeping them higher for longer.

This talk of a potential Fed rate cut, along with easing concerns over tensions in the Middle East, gave U.S. equities a solid boost. The S&P 500 hit two-week highs near 5,430, and the NASDAQ broke above the 19,000 mark. Meanwhile, U.S. 10-year Treasury yields dropped to 3.85%, and gold prices remained under $2,475.

U.S. crude oil prices missed the risk rally, likely due to easing Middle East concerns and firms like OPEC and IEA cutting their demand forecast over weaker Chinese demand outlook. WTI crude tested $80.00 but ended the day closer to $78.40.

FX Market Behavior: U.S. Dollar vs. Majors:

Overlay of USD vs. Major Currencies Chart by TradingView

Forex price action was driven by individual catalysts early in the day. The return of Japanese traders put pressure on the yen during the Asian session while the Aussie and Kiwi found support from persistently high wage pressures in Australia and positioning ahead of the RBNZ decision.

The British pound spiked after a drop in the U.K.’s unemployment rate, but it couldn’t hold onto those gains as traders shifted their focus to weaker wage growth. The euro, which had weakened during late Asian trading, barely flinched when the German ZEW economic sentiment index dropped to its lowest level in two years.

Over the U.S. session, the dollar traded broadly weaker as disappointing U.S. PPI reports fueled speculation about Fed rate cuts. This pulled U.S. 10-year Treasury yields lower and encouraged risk-taking across the markets.

Upcoming Potential Catalysts on the Economic Calendar:

• U.K. CPI reports at 6:00 am GMT
• France final CPI at 6:45 am GMT
• U.K. house price index at 8:30 am GMT
• Euro Area quarterly employment change at 9:00 am GMT
• Euro Area flash GDP at 9:00 am GMT
• Euro Area industrial production at 9:00 am GMT
• U.S. CPI reports at 12:30 pm GMT
• EIA crude oil inventories at 2:30 pm GMT
• RBNZ Gov. Orr to give speeches at 6:00 pm and 7:30 pm GMT
• New Zealand food price index at 10:45 pm GMT
• Japan preliminary GDP at 11:50 pm GMT
• Melbourne Institute inflation expectations at 1:00 am GMT (Aug 15)
• Australia jobs data at 1:30 am GMT (Aug 15)

European data reports will heat up today with the U.K. and France dropping their latest inflation data. In the Euro Area, we’ll not only see the first GDP readings but also the quarterly labor market numbers.

Then, Uncle Sam will print its inflation reports which may fuel Fed rate cut speculations. Keep your eyes on USD pairs and overall risk sentiment when the report is released!