MARKET WRAPS

Watch For:

U.K. monthly unemployment figures, Treasury Committee hearing with Sarah Breeden on her appointment as BOE Deputy Gov. for financial stability;; Germany WPI, ZEW indicator of economic sentiment, Balance of Payments; France OECD 'education at a glance' annual report; trading updates from Wickes Group, Associated British Foods, Pandora

Opening Call:

European stock futures are tracking higher early Tuesday as investors await U.S. inflation and retail sales data later this week for guidance on the Federal Reserve's interest-rate policy. In Asia, stock benchmarks traded mixed; the dollar was little changed; Treasury yields were mixed; while oil futures gained and gold declined.

Equities:

Stock futures point to a higher open in Europe after a mixed morning for Asian equities, as traders brace for a busy week of economic data releases.

Few investors believe that the Fed will raise rates at its monthly meeting next week.

But Wednesday's readout of August's consumer-price index, as well as Thursday's reports for producer costs and U.S. retail sales, will shape how bond and stock markets begin to price in the possibility of a November or December hike.

The headline consumer-price index is forecast to accelerate to 0.6% in August from July's 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal.

"The equity market has been really strong the first seven months of the year and had a healthy pullback in August, and we will see if we get encouraging signs this week that propel the market forward," said Eric Sterner, chief investment officer at Apollon Wealth Management.

"It could go the other way, too, if inflation proves to be sticky, with the potential for more rate hiking in coming months," Sterner said.

Sharing a similar view, Quincy Krosby, chief global strategist for LPL Financial said, "if we see inflation edging higher, it's not a net positive for equities."

"We won't see significant positioning until we get past some of those risk events," Oanda said.

Forex:

The dollar was little changed early Tuesday.

However, the dollar rally could get some tailwind from Europe this week, Bannockburn's Marc Chandler said.

He said the EU's economy is weakening and the European Central Bank "is trapped in a 'damned if they do and damned if they don't pickle."

If the central bank keeps rates unchanged on Thursday, the euro may weaken as the rate gap relative to the U.S. remains high.

But if a hike comes "the market will conclude it is the last, and the euro may be sold," as well, Chandler said.

Bonds:

Treasury yields were mixed as investors contemplate prospects for the U.S. monetary policy ahead of August's consumer-price index due Wednesday and a retail sales report for the same month on Thursday, which may influence the thinking of Fed policy makers ahead of their Sept. 19-20 meeting.

"If last week was a bit light on important data, you can't say the same about this week's high-impact extravaganza that will occur in a Fed blackout period as next week's FOMC lurks in the wings," said strategist Jim Reid and others at Deutsche Bank.

"U.S. CPI (Wednesday) will be the obvious standout but U.S. PPI and retail sales (Thursday) are nearly as important given how some of the PPI subcomponents feed into the Fed's preferred core PCE, and for retail sales, we'll see how much momentum has been lost after a phenomenally strong July print," the Deutsche Bank team said.

Markets are pricing in a 93% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.50% next week, according to the CME FedWatch Tool.

The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 42.6%.

Energy:

Oil futures were higher early Tuesday as traders weigh prospects that output cuts by major producers will lead to tighter global supplies.

The recent price rally seems to be losing steam, with analysts from ANZ saying that "technical indicators suggest the recent gains may have run their course for the moment."

"The fundamental focus of the oil market has shifted from demand--more specifically concerns that a slowdown in global growth will hurt consumer spending on refined products--to the supply side as Russia and Saudi Arabia caught markets off guard with their output cut extension announcements," analysts at Sevens Report Research said.

Looking ahead, the path of least resistance is higher for oil right now, with WTI "fast approaching our initial upside target of $89 [a] barrel," the analysts said.

"However, we remain in the camp that the onset of a recession will derail the rally."

Metals:

Gold edged lower in Asia as investors look ahead to this week's key consumer-price index reading for August.

Gold prices rallied overnight as the king dollar trade tentatively ran out of steam, Oanda said.

Looking ahead, it suggested that there are multiple triggers this week including the release of U.S. inflation and retail sales data, a United Auto Workers potential strike, and ECB's policy meeting that "could lead to the demise of the dollar's crown."

Jameel Ahmad, chief analyst at Dubai-based brokerage GTC also cautioned that "the slight recovery in gold buying momentum over recent trading sessions is likely to face a test of time ahead of the upcoming U.S. CPI reading which is considered as the main-event risk for traders this week."

"At the moment, the market has shifted tone towards expecting the U.S. dollar to remain as the best friend of investors for the rest of 2023, which does suggest on headline that the upside in gold is limited," he said.

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Copper prices gained as China's August credit data boosted sentiment.

Total social financing, which includes both bank and nonbank credit, was CNY3.12 trillion in August, up sharply from CNY528.2 billion in July, the People's Bank of China said Monday.

"This measure tends to have a strong correlation with growth in commodity-intensive sectors such as manufacturing and construction," ANZ analysts said.

The yuan's rebound after the PBOC escalated its defense of the currency on Monday also supported the rally, they added.

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Iron ore futures rose as China's recent property stimulus measures and August's expanding PPI data continue to boost investors' confidence.

China's PPI rose 0.2% on month in August, showing that the manufacturing inventory cycle has gradually come out of the bottom, BOC Futures analysts said.

The analysts expect iron ore demand to remain high in the short term which will boost prices.


TODAY'S TOP HEADLINES

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09-12-23 0015ET