Crude Tops 90 As Inflation Ticks Up

Before we get into U.S. data, we need to discuss the European Central Bank’s (ECB) rate decision. The central bank surprised markets by raising rates another 25 bps to 4.00%, marking its tenth consecutive hike. πŸ”Ί

Unlike the U.S., Europe has not made as much progress in bringing down inflation, and its economy has not been as resilient. The region started raising rates later than the U.S. and experienced more direct impacts of the war in Ukraine, so it’s understandable that they’d be a bit behind the curve in making progress.

However, the big news was that it noted today’s hike will likely be the last of the current cycle. After taking rates from -0.50% to 4.00% in record time, it now believes rates “rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.” ⏸️

Stocks and other risk assets rallied now that it appears most developed nations are finished raising rates for now. As the title of today’s Rip stated, Europe started today’s rally, with the U.S. and the Arm IPO helping continue it.

In the U.S., yesterday’s inflation data was a bit of a snoozer, and today’s wasn’t much better. But let’s recap it anyway, along with a look at other economic data and crude oil’s recent rally. πŸ‘‡

The August headline producer price index (PPI) rose 0.7% MoM and 1.6% YoY, marking its biggest monthly increase since June 2022. Driving that gain was rising energy prices. Core producer prices, excluding food and energy, rose just 0.2% MoM and 2.1% YoY.

Higher headline inflation is not great because that’s what consumers ultimately feel at the pump. However, some analysts say the recent rise in energy prices is due to supply constraints and not overly robust demand. That’s a positive sign for the Fed, which wants consumers to spend less and suggests prices could come back down if oil companies increase production.

As for consumers, August retail sales jumped 0.6% MoM, topping economists’ estimates as spending continues to defy expectations. Although the labor market has slowly begun softening, it remains historically tight. We received more evidence of that today, with the one-month average of jobless claims falling to seven-month lows. And when people have jobs, they tend to have more discretionary income to spend; it’s pretty simple. πŸ€‘

Moving onto oil prices, we want to start with the classic “nothing changes sentiment like price” platitude we often use. While many people have been caught off guard by the energy sector’s vicious rally since July, we have to rag on Goldman Sachs a bit for their epic bottom tick in March. 🀣

The day Goldman said it no longer sees oil reaching $100 this year was the commodity’s lowest closing price of 2023. It has since rallied a cool 35% since then, causing the bank to “predict” that oil will now hit $100. Thanks for the heads up, guys. πŸ™ƒ

As for what’s driving energy higher, well, it’s a variety of factors. Most notable is the production cuts from OPEC+ and Saudi Arabia, extending its 1 million barrel per day (bpd) reduction through the end of the year. And on the demand side, we’ve got a U.S. and global economy that has held up far better than anyone expected. Last year, 100% of economists predicted we’d be in a recession today, and we are not. As a result, oil and energy prices were likely underpriced for the current environment.

We touched on these themes during June and July, citing the improving trend and investor sentiment in energy and commodities in general. And they still exist today. So we’ll have to see if this rally continues or if Goldman’s superb timing skills put the kibosh on oil’s path to $100 per barrel. 🀷

Oil Returns To The Status Quo

The U.S. oil market is returning to its pre-pandemic norms, at least according to the manager of the popular oil ETF $USO. πŸ›’οΈ

The United States Oil Fund ($USO) has been around since April 2006 and is a futures-based ETF that looks to track the price of U.S. crude oil. It does so by purchasing the front-month sweet light crude oil (WTI) contract, holding it, and then rolling its holdings to the following contract before expiration.Β 

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Gold Shimmers Around $2,000/Oz

Precious metals have not gotten much fanfare lately, especially with palladium in a downtrend and platinum and silver stuck in messy ranges. πŸ’€

However, one that continues to pop up on investor and trader radars is gold, which is once again trying to break above $2,000/oz. Below is a chart showing prices stuck in a range for the last 2.5 years, each time failing to sustain a break above resistance. πŸ”

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The Market’s Next Show Stopper

While the U.S. economy continues to hold up relatively well, investors remain fearful about China and other international economies. So, one of the markets they’re watching for clues as to what might be ahead is copper futures. πŸ•΅οΈβ€β™‚οΈ

We spoke about copper in May when investors viewed its selloff as a bearish economic diagnosis. And now, it’s back in the news for a similar reason. πŸ“°

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Precious Metals Slowly Melt Lower

With the stock market catching its breath before a new earnings season begins, we’ve been trying to highlight other market trends. And right now, one of those is in the precious metals section of the commodities space. πŸ‘€

Gold, silver, platinum, and palladium are all considered precious metals for those unfamiliar. These metals are rare, naturally occurring metallic chemical elements of high economic value…hence the name. *cue the Gollum “my precious” meme.*

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