US TSYS: Extending Late Session Highs

Despite coming in softer than expected on the headline reading, the PPI release doesn't appear to have a significant impact on expectations for Thursday's CPI (0830ET) compared with our preview out yesterday -  Download PDF Here.

• Consensus (Bloomberg median) is for core CPI to come in at 0.3% M/M rounded in August, same as July (0.32% unrounded).
• Unrounded core CPI expectations suggest a slight skew toward risks of a rounded-up 0.4%, with an unrounded MNI median of 0.32% and range of estimated of 0.29% to 0.36%. That would be steady from 0.32% in July for the joint-highest M/M since January.
• Headline inflation is seen picking up more forcefully, to 0.36% M/M (also would be a post-January high) from 0.20%. The food and energy headline categories are both seen accelerating sharply vs July, resulting in the divergence with the core metric.
• We haven't seen much of a discernable impact on core or headline CPI expectations from the PPI data, whose downside surprise mainly stemmed from weakness in trade services prices (which aren't reflected in CPI).
• Those monthly readings would bring Y/Y core to 3.1% (unch from Jul rounded though a little higher unrounded for a 6-month high), and headline at 2.9% (up from 2.7% prior).
• Recall that the July CPI report saw further acceleration in monthly core inflation but the details defied expectations. The rise was driven by volatile services categories and - in a counter-intuitive finding amid continued tariff concerns - core goods were surprisingly soft (and inflation breadth appeared to moderate). But very strong July PPI data released subsequently, with undertones of businesses passing along higher tariff-related costs to consumers, reversed those dovish cues.

• The Eurozone unemployment rate printed at 6.2% in July as expected, a joint series low, but revisions have again altered recent trends. The data have quite often been revised and June saw a fairly typical 0.1pp upward revision to 6.3%, although the +0.2pp to 6.4% in May was more surprising.
• It leaves a trend of recent improvement but with question marks over the data. What had been seen as three months at joint cycle lows of 6.2% through Apr-Jun, tying with 6.2% in Oct-Nov 2024, Eurostat now estimate a latest pattern of 6.3% in Apr, 6.4% in May, 6.3% in Jun and 6.2% in July, tying with 6.2% only in Nov 2024.
• ECB’s Lagarde has pointed to these at-the-time historically low unemployment rates when citing the health of the labour market in recent meetings. Outright employment growth remains subdued however, with just 0.1% Q/Q and 0.6% Y/Y in Q2.
• As for inflationary pressures stemming from the labour market, Eurozone unit labour costs grew 3.1% Y/Y in Q2, down from 3.3% in Q1 for the seventh consecutive annual deceleration. This was above the ECB's 2.9% projection made in June, seemingly driven by the smaller-than-expected deceleration in total compensation per employee growth (3.9% Y/Y vs 4.0% prior, 3.4% ECB).
• While a declaration in ULC growth has allowed the ECB to deliver 200bps of easing this cycle, the data is too lagged to help determine whether further fine-tuning of the policy stance is necessary. Given the modest upward surprise to compensation per employee growth, it argues in favour of steady rates at 2.00% for now.
• ULC growth may have moderated at a steadier pace than the ECB forecast but its forward looking wage tracker released earlier in the inter-meeting process points to a continued decline in negotiated wage growth. Now with estimates out to 1Q26, it eyes wage growth excluding one-off payments at 2.6% Y/Y in 1Q26 after 3.1% in 4Q25. Overall, the results are consistent with a further softening in services inflation pressures in the coming years, in line with ECB signalling.

• RES 4: 0.8769 High Jul 28 and the bull trigger   
• RES 3: 0.8744 High Aug 7 
• RES 2: 0.8728 76.4% retracement of the Jul 28 - Aug 14 bear leg
• RES 1: 0.8713 High Sep 2  
• PRICE: 0.8653 @ 16:30 BST Sep 10
• SUP 1: 0.8636/8597 50-day EMA / Low Aug 14 and the bear trigger
• SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg 
• SUP 3: 0.8540 Low Jun 30 
• SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg

EURGBP traded lower Tuesday and has breached the 20-day EMA. Short-term weakness is considered corrective - for now - and support to watch lies at 0.8597, the Aug 14 low. Clearance of this level would reinstate a recent bearish threat. A resumption of gains would open 0.8744, the Aug 7 high. Key resistance and the bull trigger is at 0.8769, the Jul 28 high. Note that MA studies are in a bull-mode position highlighting a dominant uptrend.