US stocks closed lower today, despite the Nasdaq hitting a new intraday high before falling back. Crude oil ended at $63.96, and tariff revenues from Trump reached $29.6 billion in July. Major European indices had mixed results, while Trump extended the deadlines for China tariffs by 90 days. He also announced that gold would not face tariffs and deployed the National Guard to Washington, D.C. The US dollar gained strength against major currency pairs, rising 0.34% against NZD and 0.18% against AUD. The Reserve Bank of Australia may cut rates by 25 basis points due to inflation at 2.1% and weak employment data. The upcoming US CPI report is expected to show a 0.2% month-to-month increase and a 3.0% year-on-year rise in core inflation.

Goods Inflation and Services Inflation

Goods inflation saw moderate growth, with core goods prices up 0.2% month-on-month in June. Services inflation, driven by shelter costs, rose by 0.3% month-on-month. Shelter costs increased slightly by 0.2%, the smallest rise since August 2021, and they impact 34% of the CPI weight. Trump’s 90-day delay on increased China tariffs coincided with reports of progress in Ukraine-Russia peace talks. US stock indices closed slightly lower, with little change in bond yields. The Dow was down 0.45%, the S&P 0.25%, and the Nasdaq 0.50%. This week, all eyes are on the upcoming US CPI report. Anticipations for a slight rise in core inflation to 3.0% create tension. If the number is higher than expected, it may lead to increased market volatility and push bond yields up. The VIX volatility index closed at 17.5, reflecting this concern, with options indicating a larger-than-average movement for the S&P 500 after the data release. We are monitoring how this inflation data will influence the Federal Reserve’s decisions, especially after the disappointing jobs report earlier this month. A modest inflation reading, especially if core goods prices stay soft, could raise expectations for a rate cut later this year. Currently, Fed Fund futures suggest about a 40% chance of a rate cut by December, a number that could change significantly after tomorrow’s data.

The US Dollar and Currency Pairs

The US dollar is strong ahead of the report, but this could change. The expected rate cut from the RBA creates a clear policy difference from the Fed, which could lift the AUD/USD pair if US inflation remains strong. We think positioning for higher volatility in major currency pairs like EUR/USD and USD/JPY using simple options strategies could be a smart approach for this event. Equity markets show some nervousness, especially with the Nasdaq pulling back from its earlier highs. A strong inflation report could put pressure on technology and growth stocks sensitive to interest rates. The 90-day tariff delay on Chinese goods alleviates concerns for industrial sectors, particularly as China’s recent manufacturing PMI of 49.8 suggests economic stress. Geopolitical risks seem to be easing, which might lower implied volatility in the coming weeks. The tariff extension and planned discussions with Russia help reduce immediate market uncertainties. However, the domestic deployment of the National Guard in Washington D.C. adds a background risk that is hard to evaluate. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now