It is a telling sign that the Bundestag's overwhelming approval of Greece's third bailout barely raised a whimper from European indices, with lawmakers voting 454-113 in favour of the deal which will keep Greece from defaulting in less than 24 hours. It is clear that this deal is a short-term solution for a deeper, long-term crisis.
No-one believes this will truly provide the ultimate solution to the Greek crisis, but a short-term fix is desirable in the face of imminent economic collapse. Either Greece has a substantial amount of debt written off as recommended by the IMF, or else we will be back to the same situation once this third bailout ends. The completion of this deal remains somewhat of a foregone conclusion and yet both the euro and major eurozone bourses continue to fall. That says a lot about the market sentiment surrounding the eurozone right now.
US inflation fell for the second consecutive month, raising the likeliness that the Fed will yet again put its rate hike on the backburner in September. Whilst CPI is not the FOMC's core inflation indicator, it is clear that we could easily see the US fall back into deflation in the coming months, with the impact of multiyear lows in commodity prices and a likely continued depreciation of the yuan.
With the US representing both China's biggest export market (20% of all US imports are from China) and the biggest consumers of oil globally (almost double that of second placed China), it is clear that today's inflation reading represents the tip of the iceberg. The biggest issue could be the fall in core inflation which points to underlying disinflation regardless of energy prices. The Fed's Stanley Fischer stated that he saw a rate hike only occurring when inflation rises towards 2% and given today's CPI readings, they appear to be moving in the opposite direction.
Today’s FOMC minutes will provide markets with an insight into the varying viewpoints at the July meeting. While everyone holds out for some concrete clue of when the Fed will raise rates, much has passed since July's meeting which would make it difficult to draw conclusions from any change in language.
Chinese yuan devaluation has thrown in the possibility of another dip into deflation, which should be enough to put even the most hawkish FOMC member off hiking in September. Despite the fact that much has happened between the July meeting and today's, the minutes will provide a clear indication of how the committee is shifting in sentiment as the US economy develops.
US crude inventories rose for the first time in four months, sending WTI prices tanking yet again. With US stockpiles already at historically elevated levels, this will come as a blow to producers who will have to deal with yet lower prices. For the biggest crude user in the world, the summer usually represents a period of mass usage as driving season means demand is off the chart. However, the rate of production clearly is not being matched by demand, despite rock bottom prices. This does not bode well for the September to November period which typically sees the biggest annual stockpiles.