Crude Awakening Ahead of CPI

Higher oil prices are tightening financial conditions, but upcoming inflation data and central-bank decisions will determine the next moves in currencies, bonds, and equities.

• Brent crude is approaching $100 a barrel after reported Houthi attacks on Saudi oil facilities, weighing on stocks and bonds while giving the USD a modest lift.
• The US August CPI on Friday is the key near-term catalyst: a hot reading would nearly guarantee a 25-basis-point Fed hike on September 16, while a cooler print would support a hold and weaken the USD.
• The USD is unlikely to reach new cyclical highs because other central banks are also tightening, with the ECB expected to deliver a 25-basis-point hike on Thursday.
• The JPY’s rise appears flow-driven rather than caused by hawkish BOJ repricing; possible GPIF repatriation and the unwinding of speculative short positions helped push USD/JPY briefly to 152.89.
• Japan’s July nominal wage growth accelerated to 4.7% year over year, its fastest pace since 1997, while scheduled pay growth slowed to 2.7%; a 50-basis-point BOJ hike remains possible and could strengthen the JPY further.
• Australia’s trimmed-mean CPI stayed at 3.6% in July and Q2 real GDP grew 2.1%, above the RBA’s forecasts, supporting expectations for a 25-basis-point hike to 4.60%, although the decision could be delayed until November.

Takeaway: Investors should focus on the US CPI, the Fed and BOJ decisions, and the durability of JPY flows; the main risks are renewed USD weakness if US inflation cools and further JPY appreciation if the BOJ delivers a larger hike.