Gold: All eyes on US CPI and bank earnings

After yesterday’s record high for the S&P, today it looks like it may be the Nasdaq’s turn to potentially lead the markets higher to fresh unchartered territories – although a lot will depend on the outcome of upcoming bank earnings and US CPI, all due later. Nasdaq futures jumped earlier on the back of a report by AP that the EU has put work on plans for a “digital tax” levy on hold to concentrate on finalizing the historic tax decision endorsed by G20 nations over the weekend.  The S&P futures also held near Monday’s highs ahead of the publication of US CPI and earnings from the likes of JP Morgan, Goldman Sachs and PepsiCo. Also adding to the positive sentiment was crude prices which found renewed support from bullish comments from the International Energy Agency. The IEA warned that the oil markets will tighten "significantly" if the OPEC+ stalemate continues and the group ends up rolling over July quotas to August. The group added that the OECD crude oil stocks are now well below historical averages. Meanwhile in FX, the dollar was moving sideways as you would expect given the importance of CPI due at 13:30 BST.

 
US inflation report up next

Given that the Fed is showing concerns over rising prices, inflation data over the coming months will be important as they could impact the timing of the Fed’s tapering of its bond purchases programme.

Analyst expectations are centred around 4.9% on the headline CPI, which would be a touch weaker than 5.0% from the previous month. In terms of core CPI, they expect a 4.0% reading – if correct this, would be up from 3.8% previously and the highest reading since 1991. On a month-on-month basis, CPI is seen rising 0.5% and 0.4% for the core print.

Expect the dollar and buck-denominated metals to move sharply on the back of today’s CPI data. If CPI is hotter than expected, it could revive taper talks again, sending the USD/JPY etc higher and potentially halting the Wall Street rally. But in recent times, investors have been shrugging off signs of inflationary pressures as so far, much of the rise in prices have been concentrated in categories impacted by the effects of supply chain bottlenecks and economic reopening.

Therefore, if it is again the same drivers, this wouldn’t worry the Fed too much as the central bank has repeatedly indicated it is happy to allow this type of an overshoot in prices.
 
Watch gold

Gold prices have been able to hold their own relatively well in the past few weeks as yields dipped and dollar rally slowed. However, it hasn’t been able to reclaim $1810 resistance yet. A closing break above this level is needed to tip the balance back in the bulls’ favour. If so, a quick rise to the next area of trouble around $1850 could be next: