Advanced filters
Job Role:
Content Type:
Job Role:
Content Type:

Market Briefing: Price action slows ahead of US inflation and Canadian policy decision

CalendarJuly 10, 2023

Markets seem to be tiptoeing into a data-light week with a sense of trepidation. Equity futures are weaker, Treasury yields are ticking lower, and benchmark dollar indices are pushing higher ahead of the opening bell, suggesting that risk appetites remain relatively constrained after Friday’s big moves. The euro, pound, and Canadian dollar are all sitting in defensive positions, with technical indicators pointing to rangebound price action ahead.

Inflation flat-lined in China last month, and a sharp decline in producer prices suggested that the world’s biggest manufacturer is beginning to export deflation. Headline consumer prices were unchanged in June relative to a year earlier, and core inflation fell to 0.4 percent year-over-year from 0.6 percent in the prior month. Separate data showed a -5.4-percent year-over-year tumble in producer prices. The country is facing an idiosyncratic backdrop, with supply-side stimulus efforts driving output costs down even as domestic demand struggles to recover from last year’s covid-19 lockdowns and a wholesale crackdown on property speculation. But big drops in Chinese prices have historically foreshadowed negative inflation prints in the US and other Western economies (most notably in 2008 and 2015), making it likely that evidence of disinflationary pressures grows stronger in coming months.

Ahead today: US wholesale inventories - not typically market-moving, but nonetheless relevant to understanding the business cycle - are seen falling -0.1 percent in May. The San Francisco Fed’s Mary Daly, Cleveland’s Loretta Mester, and Atlanta’s Raphael Bostic are scheduled to speak, with investors playing close attention in the run-up to the July 26 rate decision.

On Wednesday, the US is expected to report a sharp decline in both headline and core inflation measures during the month of June - but with declining used car prices and seasonal adjustments playing outsized roles, the data isn’t likely to blow the Federal Reserve off course. The all-items consumer price index is expected to fall to 3.1 percent year-over-year, down from 4 percent in May, while the non-food, non-energy measure drops from 5.3 to 5 percent.

Markets are currently assigning circa-92-percent  odds to an interest rate hike later this month, but the probabilities on a move in the autumn months remain vulnerable to adjustment. A softer-than-anticipated print could add to Friday’s modestly-disappointing non-farm payrolls number in building the case for an extended pause.

Later the same morning, the Bank of Canada looks set to raise rates by another quarter point, responding to evidence of “persistent excess demand” in the economy. Recent jobs, price, and sentiment numbers have done little to suggest that growth is poised to slow dramatically, but we’re convinced that higher borrowing costs will hit consumer spending by the early autumn, making Wednesday’s move likely to be the last in this hiking cycle.

Upcoming Events


GBP    Claimant Count Rate, June


USD    Consumer Price Index, June

CAD    Bank of Canada Rate Decision

USD    Energy Information Administration Weekly Inventories

USD    Federal Reserve Beige Book

CNY    Trade Balance, June


GBP    Gross Domestic Product, May

GBP    Trade Balance, May

USD    Initial Jobless Claims


USD    University of Michigan Consumer Sentiment, July, Preliminary

USD    Baker Hughes Weekly Rig Count


Karl Schamotta

Karl Schamotta

Chief Market Strategist

Gain insights into developments in global currency graphSubscribe