US Inflation Eases, October Fed Rate-Hike Bets Retreat

Market Wrap-Up: Softer Inflation Eases Fed Tightening Expectations

US inflation rose less than expected in August, with the Personal Consumption Expenditures (PCE) Price Index increasing 0.3% month-on-month and 3.4% year-on-year. Core PCE inflation rose 0.2% month-on-month and 3.0% year-on-year, while revised July figures showed more moderate price growth than previously reported. 

The softer inflation data reduced expectations for another Federal Reserve rate hike in October, initially weighing on US Treasury yields and the dollar. US equities were mixed, with the Nasdaq advancing while the S&P 500 edged lower.

The Fed raised its benchmark interest rate to the 3.75%-4.00% range earlier this month, its first rate increase in three years, and signalled further increases in borrowing costs in the months ahead.

Consumer spending remained resilient, rising 0.9% in August after a downwardly revised 0.1% increase in July. Spending adjusted for inflation rose 0.6%, while the saving rate fell to 4.1%, its lowest level since November 2022.

US GDP growth for the second quarter was also revised higher to an annualised 2.2% rate, supported by resilient consumer spending and business investment linked to AI infrastructure. The stronger growth picture added to signs of economic resilience, although rising imports could weigh on third-quarter GDP.

Gold initially gained after the softer inflation reading but later declined as rising energy prices and elevated Treasury yields offset some of the support from reduced Fed tightening expectations. Spot gold fell 0.7% to $4,152.86 an ounce as of 1:40 p.m. ET, while US gold futures settled 0.2% higher at $4,186.70. 

Oil prices rose as stalled US-Iran peace talks and tightening fuel markets supported crude. Brent November futures settled 0.9% higher at $103.50 a barrel, while the more active December contract rose 1.9% to $98.03. WTI settled at $90.42, up 1.2%. 

Markets now turn to a series of US economic indicators on Thursday, including weekly initial jobless claims, Challenger job cuts, and the ISM Manufacturing PMI, alongside speeches from Federal Reserve officials. 

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DXY:

Key takeaway:

• Dollar momentum remains sensitive to Fed policy expectations.
• Treasury yields remain a key driver for the dollar.

Technical Outlook:

• Daily Bias: Bullish
• Support: 101.02
• Resistance: 101.80

Gold:

Key takeaway:

• Gold remains sensitive to shifts in Treasury yields.
• Energy prices add to inflation-related pressure on the metal.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,111
• Resistance: 4,220

Oil:

Key takeaway:

• US-Iran developments remain a key risk for crude markets.
• Tighter fuel inventories continue to support oil prices.

Technical Outlook:

• Daily Bias: Neutral
• Support: 88.61
• Resistance: 92.00

Calendar Watch:

• Weekly initial jobless claims: A timely gauge of US labour-market conditions and employment momentum.
• Challenger job cuts: Provides an early signal of planned layoffs and potential changes in labour-market conditions.
• ISM Manufacturing PMI: Shows the health of the US manufacturing sector and the pace of business activity.
• Fed Speeches: Markets will watch comments from several Fed officials, including Barkin, Collins, Schmid, and Waller, for further signals on interest rates and the Fed’s policy outlook.

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