EU CPI set to rise in August

European markets are expected to edge lower, following the Asian and US path on Friday, while investors will be closely watching EU inflation figures and UK retail sales data.

The most exciting development on Friday came from the gold market, where the precious metal broke the crucial support of $1690 to draw a bearish outlook ahead of the Federal Reserve's meeting next week. The price stood at $1663 on Friday morning.

Another losing week for stocks

As Wall Street headed into a loss week, traders absorbed an ugly FedEx earnings warning. The three major averages appear to register their fourth loss in five weeks. This week, the S&P 500 and the Dow Jones Industrial Average declined by 3.70% and 4.08%. It is expected that the Nasdaq will suffer its worst weekly loss since June this year as the index is down 4.62%. 

A surprisingly hot reading in August's consumer price index report indicates the Federal Reserve will have an increasingly challenging time bringing inflation down. Traders are concerned markets will retest June lows.

In Asia-Pacific, stocks fell Friday despite encouraging economic data from the US and China that exceeded expectations in both industrial production and retail sales for August.

USD/JPY retreated the 145 roadblock ahead of central banks meetings

We should keep an eye on USD/JPY because the Japanese authorities appear to have at least some success in stalling the yen's decline. They have stated that 145 is a level they do not want to be crossed. By doing so, the dollar's rally has been shifted to other key currencies, notably the yuan and the Australian dollar. This could lead to a battle royale between the Federal Reserve and Bank of Japan next week over the 145 yen level, with the two meetings and the potential for further policy divergence between the two banks.

Short term supports for oil

Friday's morning rebound in oil prices can only be described as a short-term adjustment, given that the Federal Reserve will raise interest rates by 75 basis points or 100 basis points next week. Both Brent and WTI are on track for their third consecutive weekly loss, partly because of the rising value of the US dollar, which makes oil more expensive for buyers using other currencies. Further, the upcoming recession will likely weaken demand.

It is unlikely that the Fed will raise rates by 100 basis points, but it would cause uncertainty in the market. So there is still a risk that oil prices might fall next week.

However, there are some signs of support in the short term. The market has found some help due to waning expectations of Iranian crude returning, as Western officials downplayed prospects of reviving the Iran nuclear agreement. In addition, OPEC+ members will likely discuss production cuts at their October meeting, which could support oil prices in the fourth quarter. Moreover, Europe would face an energy crisis due to uncertainty over Russia's oil and gas supplies.