Market Bets: Oil Prices and CPI Drive the Day

Today's market will be closely following a series of crucial economic events. In the European session, the only highlight will be the monthly UK GDP data for July, expected to show zero growth (0.0%). While this number may not significantly alter the BoE's stance, market pressures have already increased due to recent oil price surges. With Brent crude trading above $100 per barrel, there is a strong increase in bets that the US will hike rates twice by year-end, starting in November. In the American session, all eyes will be on the U.S. Consumer Price Index (CPI) report. The market expects annual headline inflation at 3.4%, monthly at 0.4%, and core CPI at 2.4% annually and 0.2% monthly. Specifically, the Core M/M measure will be crucial as it is what Fed members have been closely monitoring. The recent price increase in commodity prices, particularly oil, has led to a hawkish re-pricing across the board, with market bets now pricing in a 65% chance of a rate hike at the upcoming meeting. Analysts suggest that an in-line CPI reading may not be enough to steer the market away from expectations of higher rates. In essence, the probability of a hawkish FOMC decision is on the rise, which could force the Fed to hike just to avoid delivering a dovish surprise.