U.S Inflation data came in hotter than an Alabama tick and missed analyst CPI expectations which all but cement a significant Fed rate hike on the cards later this month.
U.S Inflation increased 0.1% in August despite a sharp decline in gasoline prices and rose 0.6% from July, which was enough to prompt market participants to turn bearish. All major U.S Indexes moved lower after the announcement as another 75-basis point rate hike is all but inevitable for the following Fed announcement.
Technicals
A bearish outlook is probable for the rest of the month as fundamental factors start to play a role in the broader US economy once more. We look to the S&P 500 and E-mini-Futures (ES) as a possible short opportunity back to its triangle breakout in July as a target point on the daily chart.
This outlook has a longer-term view but could also present opportunities for market participants over the rest of August.
Fundamentals
U.S economic data, especially Inflation numbers, have become a focal point for market participants around the globe during the current Fed hiking cycle. The CPI data showed that inflation rose from higher food and shelter cost despite a 5% decline in energy prices for the month.
Shelter, which makes up around one-third of the CPI weighting, increased 0.7% while the food index rose 0.8%. Medical care services also contributed to the higher-than-expected inflation data and jumped 0.8% for the month and 5.6% higher than the year before.
U.S Inflation has increased to 8.3% over the past year, while core CPI month-over-month data has everyone hot and bothered and came in at 0.6% since July.
Today’s higher-than-expected U.S CPI data has placed more pressure on the U.S Federal Reserve Bank to increase interest rates substantially. The market is expecting a third straight 75 basis point rate hike from the Fed at the next FOMC scheduled for the 21st of September 2022.
Summary
Possible short entry around the 4043 level on ES, with a potential target point around the July triangle breakout zone of 3889. Risk mitigation could be a rule-based or percentage-based approach but not higher than the resistance rejection zone at 4134.
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