Stocks were boosted by falling producer price index (PPI) growth, which indicates low CPI readings are likely later today. Gold continues to test resistance at $2,475 per ounce, boosted by falling long-term Treasury yields and a weaker Dollar.
Stocks
The S&P 500 broke resistance at 5400 and is headed for a test of the descending trendline at 5500. The Trend Index is rising but below zero, warning of longer-term selling pressure.
The Russell 2000 Small Caps ETF (IWM) is testing resistance between 210 and 215, with the Trend Index indicating secondary buying pressure.
Stocks will likely receive a further boost if we get low CPI growth for July, as expected.
Financial Markets
Bitcoin retraced to test its new support level at $60K [red line]. Respect of support is likely and will confirm rising liquidity in financial markets.
Treasury Markets
Ten-year Treasury yields are falling, headed for a test of support between 3.7% and 3.8%. Low Treasury yields are bullish for stocks, bonds, and especially gold.
Dollar & Gold
The Dollar Index is testing support at 102.5, while a Trend Index peak below zero indicates long-term selling pressure. A weak Dollar is also bullish for gold.
Gold continues to test resistance at $2,475 per ounce, while rising Trend Index troughs above zero signal long-term buying pressure. A breakout is likely, offering a target of $2,600.
Silver remains in a downtrend because of weak industrial demand from the Chinese solar industry.
PPI Inflation
The producer price index (PPI) dipped to 2.27% growth for the 12 months to July.
Monthly growth collapsed to an annualized rate of 1.2%.
Services inflation tends to be the most persistent, so a fall to 2.56% annual growth in services PPI is encouraging.
Monthly services PPI contracted at an annualized rate of 1.9%, which flags a slowing economy.
Low PPI inflation is encouraging and increases the likelihood of low CPI readings later today. Negative services PPI warns that the economy may contract, increasing the probability of a Fed rate cut in September.
Energy
Nymex WTI crude respected resistance at $80 per barrel.
Brent crude similarly found resistance at $82 per barrel.
Low crude prices are expected to ease inflationary pressures, increasing the likelihood of a Fed rate cut in September.
Conclusion
We expect low CPI readings later today to further boost stocks. Falling long-term Treasury yields are bullish for stocks, bonds, and especially gold. The weakening Dollar is also bullish for gold, which continues to test resistance at $2,475 per ounce. A gold breakout is likely and will offer a target of $2,600.
Acknowledgments
- CoinDesk: Bitcoin Prices