TACO Time Returns With CPI Now In Focus

WHERE WE STAND – Well, ladies and gents, TACO time is back again!

Yup, the President is back to kicking the can down the road on the trade front once more.

Exhibit A – extending the China trade truce for another 90 days; pencil in Sunday 9^th November as the new deadline on that one (if it holds, which it probably won’t).

Exhibit B – a U-turn on Friday’s plans to slap reciprocal tariffs on imports of certain gold bullion bars, which will now no longer be subject to any tariffs whatsoever, after severe dislocations in the futures complex over the last couple of sessions.

Markets, though, it has to be said, didn’t react much, if at all, to either of those headlines, instead starting the new trading week in the same vein that the last ended – basically, by going nowhere especially quickly.

That said, while my conviction in the equity bull case had been waning a bit of late, I’m happy to report that it is now starting to return, despite some modest losses on Wall St yesterday. Recall, the three pillars of that case were, and still are, solid earnings growth, solid underlying economic growth, and a more conciliatory tone on the trade front.

While jitters over growth remain, with Friday’s US retail sales print key on that front, I’m pretty confident to put a ‘tick’ in the first, and last, of those aforementioned boxes. As such, the path of least resistance for stocks once more leads to the upside, with dips there as buying opportunities, in what remains a strong and robust bull market.

Looking ahead, once today’s CPI print is out of the way, that’s pretty much it in terms of big event risk until the August jobs report early next month; yes, NVDA’s earnings are due at the end of August, but given how much capex has been ramping up among hyperscalers, they hardly seem likely to disappoint. Again, that clears the way for a continued drift to the upside.

Elsewhere, Treasuries trod water throughout Monday, trading in relatively tight ranges, likely as participants simply sat on their hands ahead of today’s inflation figures.

Trade in the FX space was also relatively subdued, though the dollar did firm just a touch, likely in what was something of a mechanically-driven move, with the buck having, prior to yesterday, notched five daily declines in six to start the month of July. While those gains did take the greenback above its 50-day moving average once more, per the DXY at least, this isn’t a rally that I’d be viewing as especially durable, especially as Trump continues on his drive to erode the Fed’s policy independence. We’d really need to see a close below the 98 figure to get the bears excited, though.

On the flip side of that, and especially now that all the tariff nonsense is out of the way, gold should well regain its lustre. Again, though, a break back above $3,400/oz is going to be needed to confirm that the bulls have the upper hand once more.

LOOK AHEAD – As mentioned, the latest US CPI figures highlight today’s docket, and might provoke price action that’s considerably more exciting than what we saw yesterday.

Headline CPI is seen having risen by 2.8% YoY in July, while core prices are set to have risen by 3.0% YoY over the same period. Both of those, if realised, would be 5-month highs for the respective metric, while also being the fourth straight month that inflation has been moving away from the Fed’s 2% target. Of course, close attention will be paid to potential signs of tariffs being passed-through in the form of higher consumer prices, meaning the core goods metric will come under close examination, having last time printed a 2-year high 0.7% YoY.

Coming into the report, money markets price a 25bp cut in Sept as a 9-in-10 chance, which still seems far too punchy in my mind, while also pricing around 57bp of easing by year-end. I’d imagine, for equities at least, given the comfort blanket that the surge in September cut expectations has provided recently, that a hotter-than-expected figure could see some fairly sizeable downside, as relatively weak longs bail out.

Elsewhere, today, a handful of Fed speakers are due, while on this side of the pond we receive our latest update on the UK labour market, as well as this month’s ZEW sentiment surveys from Germany. The UK jobs figures aren’t worth worrying about too much, given ongoing data quality concerns, while the ZEW stats are unlikely to be especially market-moving either.