A move lower in bond yields has given equity markets a much-needed reprieve. However, if the Core PCE Price Index print produces any sort of surprise to the upside, then this reprieve for risk assets may be short lived.
Bond yields pulled back from fresh 16-year highs but remain historically high, with US GDP data coming in marginally softer than expected. The retreat in yields was enough to give risk-assets some breathing space but with the 10-year note still above the 4.5% level this is keeping investors anxious from a rates perspective.
We know that FOMC officials will be watching the Core PCE Price Index like a hawk, no pun intended, so any signs of core pressures rising would increase the odds of a November hike from the Fed.
As such, we will likely see some tentative trading in the lead-up to this key release given how the result could sway monetary policy expectations, one way or the other.
The gold price is unable to catch a break at the moment, with the price heading south as demand for the precious metal dries up. Safe-haven flows are heading into bonds and the USD at present rather than into gold, with investors baulking at the zero yield on offer from gold when higher rates of return are on offer elsewhere in the current environment. Immediate risks for gold are to the downside until such time as we see a swing of momentum away from the USD and bond yields.
Oil eased back from fresh yearly highs on some profit taking, though the technical and fundamental pictures both favour further gains in the short term. The oil price will also be reactionary to upcoming Chinese PMI data, as well as any signs of more promising domestic travel numbers over the Mid-Autumn festival, with traders still trying to assess whether the trough of the downturn has already been reached.
Overall, the outcome of the Core PCE Price Index could be what determines the direction of market sentiment to end what has so far been a dour month for risk assets.
Market commentary from Tim Waterer, chief market analyst at KCM Trade.
