Oil price surge trims European market gains ahead of US CPI release

Key headlines:

Market snapshot:

• WTI crude oil climbed 1.38% to $95.45
• Gold dropped 0.47% to $4137
• The Australian dollar outperformed, the Swiss franc underperformed
• The S&P 500 rose 0.13% to 7866
• The US 10-year Treasury yield slipped 1 basis point to 5.20%
• Bitcoin gained 0.26% to $83,317

The session was relatively quiet, with no major economic data or news releases. WTI crude extended its rally to new weekly highs, prompting a pullback in other markets. No clear catalyst was evident, although Iran's revolutionary guards said a container ship sank in the southern Strait of Hormuz after hitting a naval mine.

During the US session, all attention will be on the CPI report, particularly the month-over-month Core CPI figure, as Federal Reserve officials have focused on the monthly pace of core inflation to determine the number and pace of future rate hikes.

The probability of an October rate hike currently stands at about 21%, as traders await the CPI data before fully ruling out a hike despite pushback from Fed members. In my view, a rise to 0.3% may not lead the market to fully expect a hike in October, but a jump to 0.4% would likely do so. In that case, I would anticipate a risk-off move, with equities falling, the dollar rallying, and precious metals declining.

Conversely, a figure in line with expectations or lower would likely provide short-term relief, boosting stocks and precious metals while weighing on the dollar. However, the bigger picture remains unchanged as inflationary pressures from the Middle East crisis persist.