European markets and U.S. Futures are plagued by the Chinese stock market meltdown. The sell off in commodities has been the main agenda on the trader’s dashboard for some time. Yes, it is true that we have seen some relief rally in crude oil but even then you have to look at this from a difference lense to get the right picture. Given the recent massive drop in oil, you will be very much inclined to take some profit off the table, especially when you know that crude inventory data is due. It is like standing in a ring and you have only two options: punch or you will be punched.
Copper on the other hand still cannot find its solid foundation as the sell off continues in the Chinese stock market. Unless we see some sign of stabilization, it is extremely difficult to knit a scenario under which you could see the commodity prices rising again.
Back in Europe, there is nothing new but the same old boring topic of Greek third bailout package and today is the day when the vote will knock on the European Parliaments and it will be highly interesting to see the outcome from Germany’s Bundsbank. Unless the bank feels confident that the IMF is standing shoulder to shoulder with them on this new deal, we do not think that anything meaningful can be trusted here. As for the UK, the core CPI data have lifted some hopes that perhaps the BOE is bluffing with respect to a rate hike and such decision could actually see a sunlight towards the end of this year. More robust data, we will have, the higher the sentiment will become for an early rate hike by the BOE.
What we have later in the day, is the CPI data for the U.S. which will play very important role in the upcoming FOMC minutes due this afternoon. The forecast for the CPI to increase by 0.2%. There is no change in expectations for the core prices, which could ring the bell with a print of 1.8%. The FOMC minutes will surely have some concerns about the Chinese stock market meltdown and the Fed could use this golden ticket to not to raise the interest rate in September. However, the situation needs to be more brutal for the Fed to really use this as an excuse. What investors will be looking from these minutes will be how many other members are aching to raise the interest rate.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam