Morning Bid: Diesel the real spoiler for US inflation doves

A look at the day ahead ‌in European and global ​markets from ​Wayne Cole.

It's been a patchy start to the week with tech leading Asian shares higher, while European and Wall Street futures barely budge. Semiconductor makers' stocks drove the Nikkei up 2% or ‌so, while South Korea's Kospi climbed around 3% to 6,900.

Some traders pointed to an ⁠uber-bullish outlook from Goldman Sachs predicting a further 75% rise in the Kospi to 12,000, though that has been a longstanding call. It ‌might help that with the U.S. having ‌a public holiday on Monday, it's safe to buy tech stocks without worrying that Wall Street will tip everything into the red.

The AI craze also helped distract from the deadlock in the Gulf where Tehran ​said it will announce a restricted zone outside the Strait of Hormuz in coming days, after U.S. forces hit three Iranian tankers and Iran's Islamic Revolutionary Guard Corps launched ballistic missiles at two U.S. Navy ships.

Brent ⁠is up 0.6% or so at $96.85 a barrel, while U.S. crude firmed to $92.10. That's not good news for diesel prices, which hit record highs last ​week. That's the fuel that matters most for transport, shipping, farming and manufacturing.

This inflationary pulse raises the stakes for the August U.S. CPI report on Friday where any rise ​in core inflation above 0.2% would pile pressure on the ‌Federal Reserve to hike rates this month. Fed funds futures are around 57% for a September move, 70% for October and fully priced for December.

A high CPI reading would certainly ⁠not be welcomed by President Donald Trump, who last week threatened to cut off trade with countries running a trade surplus with the United States should the Fed not slash interest rates as he wanted.

Then again, Europe has political troubles of its ⁠own as the far-right Alternative for Germany (AfD) surged into first place in state elections in Saxony-Anhalt on Sunday, though it was still ​short of a majority.

The euro is little changed so far at $1.1608, but German bunds could come under pressure should the AfD look like actually taking power.

The ECB is considered certain to raise rates to 2.50% when it meets on Thursday, so the ‌focus is on what is said about the chance of a further tightening. The majority of analysts believe this will be the last hike of the cycle, but ‌markets are fully priced for at least 2.75%.

The dollar is flat at 156.21 yen, having fallen over 2% last week amid ⁠all the chatter about the possibility of a ‌more hawkish Bank of Japan.

Key developments ​that could influence markets on Monday:

- EU Sentix investor confidence for September and final Q2 GDP and employment

- German industrial output for July

- UK house prices and BRC retail sales

(Editing by ‌Jamie Freed)

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