US CPI (consumer price inflation) inflation might have just started picking up after missing the mark for the past five months. The consumer price index grew 0.4% month-over-month in August, compared with the 0.3% expected gain. It had risen only 0.1% in July.
The YoY (year-over-year) rise in inflation for August was 1.9%, which is also higher than the 1.8% estimate. Core CPI (excluding food and energy) stood at 1.7% annually in August, while economists were expecting a rise of 1.6% YoY in core CPI. Remember, the Fed is very focused on core inflation right now.
Inflation and the Fed
As inflation and employment are the most important factors determining the size and pace of the Fed’s rate hikes, investors keep a close eye on these factors. The Fed has long been viewing the weaker inflation as transitory and believes that core inflation will eventually reach its 2.0% target.
While the previous five months of missed inflation growth expectations left market participants wondering if the Fed would go ahead with another rate hike this year, these latest numbers have rekindled the hopes of another hike.
The Fed’s objective and gold
However, the recent inflation data has been helped by rising energy prices, which increased the most in August since January 2017, but this might have been due to the impact of Hurricane Harvey.
The Fed states its inflation objective in terms of PCE (personal consumption expenditure) inflation, which should be updated on September 29, 2017. Stronger-than-expected data could increase the chances of a rate hike in December.
Remember, higher interest rates are negative for the gold outlook because that environment doesn’t generate income apart from capital gains. Gold prices (GLD) affect key gold stocks (GDX) (GDXJ) like Iamgold (IAG), Gold Fields (GFI), Kinross Gold (KGC), and Agnico Eagle Mines (AEM).
Calendar 2017 has been a tough one for the US dollar (USD), which has fallen ~10% YTD (year-to-date).
Broadcom (AVGO) stock fell ~8.5% after markets closed yesterday following the semiconductor giant's fiscal 2019 second-quarter earnings release. It missed analysts' revenue estimate and cut its fiscal 2019 revenue guidance by $2 billion to $22.5 billion due to sluggishness in its semiconductor solutions business.
The SPDR Gold Shares ETF (GLD), which tracks physical gold prices, has underperformed the broader markets year-to-date, rising just 4.4% compared to the S&P 500’s (SPY) gain of 15.9% as of June 14. The sentiment for gold, however, has been turning around.
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As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
Amazon is discontinuing its Amazon Restaurants service, which has been delivering food for restaurants in parts of the United States. Amazon Restaurants launched in the United States in 2015 and entered the British market the following year. However, it met strong opposition in the British market.