With the August employment report in the rear-view mirror, this week’s CPI (Friday) and PPI (Thursday) may very well determine whether the Fed hikes at the September 16 FOMC meeting. Amongst US macro data this week, we have CPI, PPI, existing home sales, Univ of Michigan & initial jobless claims. On CPI itself, we estimate headline CPI to be at 0.36% MoM & core CPI to be at 0.22% MoM. Our forecast for CPI and PPI data points to 0.20% m-o-m core PCE inflation in August. We believe another 0.2% monthly core PCE inflation is consistent with our Fed call of no rate hike at the September FOMC meeting. If our forecast materializes, we think that a majority of FOMC participants will see three months of benign core PCE inflation (0.1-0.2% m-o-m) from June through August as progress toward the Fed’s 2% inflation goal, leading to no rate hikes at the upcoming September FOMC meeting. In dated UST supply this week, we have $58 BN of 3 year UST auction on Tuesday, $39 BN of 10yr UST auction on Wednesday & $22 BN of 30 year US bonds on Thursday. Fed speak last week was mostly dovish with both Waller & Williams advocating for a hold in Sep FOMC meeting. The low intensity conflict in middle east continues with increase in shipping attacks seen on the weekend. We are now expecting Brent to break out from the narrow range of 85-95 levels to move towards 110 levels if current hostilities continue. Iran seems to be taking a position of ensuring higher crude prices so that US elections get affected for Trump but Trump does not seem to care about the elections anymore. The larger issue at hand is that post US elections on 3rd Nov, Iran won’t have any leverage on Trump & then Trump can choose to take any action he deems fit. That should worry IRGC bosses. Time is running out for Iran to make a deal with US. In RoW events, we have ECB meeting on Thursday where we expect a neutral hike of 25 bps. We also have German state election results on Sunday, German industrial production, Euro Area Sentix survey & UK GDP data this week.
