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Most soft commodities have fallen sharply since mid-May, with wheat declining the most (31%), supporting the thesis that inflation may have peaked in June. Similarly, oil (WTI) peaked on June 8th at USD122 after supply worries somewhat faded and concerns around falling demand surged. It is now trading below USD88pb, down 4.5% today on global growth worries triggered by weak macro data from China for the month of July. The poor figure caused China's central bank to announce a surprise interest-rate cut. Markets still expect interest rates in the US to increase by 50bps next month, followed by another 25% bps hike later on.

Earnings from big-box retailers such as Walmart, Home Depot, and Target are expected to offer investors more insights into the strength of consumer spending and the state of corporate margins and excess inventories. 

The S&P500 (4'220) is getting close to its 50% Fibonacci retracement level of the entire decline in the S&P500 stands at roughly 4'231, which would suggest the lows are in. Behind the rise, investors are increasing bets the Federal Reserve will pivot to a less aggressive monetary policy in the coming months. That is with inflation still well above the 2% target level, but showing encouraging signs of slowing down. Traders should watch out for signs inflation is not slowing down as expected, looking at more data such as the PPI today and Friday's import/export prices and the Michigan expectations survey. In the meantime, momentum and risk-on mood could carry stocks higher as those stocks with the largest decline this year could make the most gains. 

US Consumer Price Index (CPI) came lower than expected at 8.5% year-over-year in July, a high number but lower than the 8.7% expected, and 9.1% recorded in June. Core CPI is still high at 5.9% versus 6.1% expected, a reassuring number for investors who are looking at the glass as half full. The most important for markets is that inflation doesn't increase and trends lower in the coming months. As it decreases the odds of a September 0.75% hike, stocks are surging, with high PE stocks surging the most as those are highly sensitive to Treasury yields. 

Looking at technicals, the 50% Fibonacci retracement level of the entire decline in the S&P500 stands at roughly 4'231, or roughly 1.7% higher from here. Since 1950 there has never been a rally that exceeded the 50% retracement and then gone on to make new cycle lows. Therefore, past performance suggests that if the S&P500 were to exceed 4'231, we could assume June was the low for this market cycle. This morning, S&P500 futures are advancing 0.30% as investors are gaining confidence ahead of the inflation report on Wednesday.