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Investors are closely eyeing the upcoming US inflation figures, which could determine the Federal Reserve’s next policy moves. Meanwhile, global stocks and commodities continued to gain ground ahead of the report.

The S&P 500 and Nasdaq 100 futures pared some of Wednesday’s declines as markets prepared for the inflation data dropping later today. Crude oil hovered near 9-month highs, while natural gas and rice hit multi-year peaks this week.

Traders Brace for Impact of CPI Report

All eyes are on the US Consumer Price Index (CPI) figures scheduled for release on August 10. Economists forecast the headline inflation rate to edge up due to higher oil prices. However, the core CPI, which excludes food and energy costs, is expected to retreat — a trend that Bloomberg Economics believes could push the Fed to pause rate hikes at their September meeting.

The CPI report will shape expectations around the Fed’s tightening path. More hawkish data could spur the central bank to continue aggressive hikes, while a softer print may encourage a slowdown in rate rises. Investors are analyzing the figures to determine the likely trajectory of Fed policy.

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Global Stocks Inch Higher

Global stocks climbed ahead of the inflation data. The Euro Stoxx 50 index jumped 1.2%, while S&P 500 and Nasdaq 100 futures pointed to a positive open on Wall Street after Wednesday’s tech rout.

In Asia, South Korea’s KOSPI dipped 0.3% and the Hang Seng Tech Index slid 1.2%. Markets were focused on Alibaba’s upcoming earnings as well as liquidity concerns around Chinese developer Country Garden Holdings. Meanwhile, Japan’s Nikkei 225 added 0.6% and Australia’s S&P/ASX 200 gained 0.2%.

Commodities Continue Upward March

Commodity prices remained elevated across the board. Brent crude oil futures rose above $87 per barrel, just shy of 2022 highs. Tight supply amid the Ukraine war and expectations of resilient demand have powered oil’s surge.

European natural gas jumped over 6%, holding above €40 per megawatt-hour. Traders are worried potential strikes in Australia could disrupt global LNG exports. Per Citigroup, this could double January gas and LNG prices in Europe and Asia.

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Beyond energy, rice futures attained their highest level since 2008 this week. Supply concerns and strong global demand have lifted rice over 50% in 2022 so far. Other grains like corn, wheat and soybeans are also trading substantially higher on supply shortages.

Currencies React Ahead of Inflation Data

In the currency market, the US dollar dipped against most major peers. The Bloomberg Dollar Spot Index, which tracks the greenback’s value against ten major currencies, declined 0.2%. The euro and British pound both climbed 0.3% against the dollar.

The New Zealand and Australian dollars outperformed, gaining around 1% each. The yield-sensitive Japanese yen treaded water near 24-year lows. The offshore Chinese yuan edged up marginally against the greenback.

Analysts say the dollar could retain strength over coming months as the Fed maintains its aggressive policy approach. However, softer-than-expected inflation may hamper the greenback. The CPI figures could dictate near-term dollar moves.

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What Lies Ahead

After the CPI report, attention shifts to US jobless claims and August consumer sentiment data on Thursday and Friday. Investors will watch these high-frequency indicators to gauge the health of the US economy.

Eurozone GDP and industrial production figures land on Friday. Next week sees key China activity data for July along with the FOMC meeting minutes.

For now, traders remain focused on parsing the inflation report and recalibrating monetary policy expectations. The CPI release could spark significant market swings. Its implications will drive sentiment in the next few trading sessions.

The Bottom Line

Global stocks climbed while commodities rallied ahead of highly anticipated US inflation data. The CPI report should show if price pressures are cooling in the world’s largest economy. This could sway the Fed’s policy outlook and the dollar’s near-term direction. Markets are poised to react to the inflation figures, which will shape the narrative around growth, monetary policy and asset valuations.

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