Investors await more inflation data

written on October 13, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities closed modestly lower in a lacklustre mid-week session as the markets digested a hotter-than-expected September Producer Price Index, while looking ahead to today’s read on consumer prices. Meanwhile, the Fed released the minutes from its September monetary policy meeting, indicating its intentions to remain aggressive after upping its target for the fed funds rate. The Dow fell 0.1%, the S&P 500 declined 0.3%, and the Nasdaq Composite shed 0.1% on generally moderate volume. Equity markets in Europe also finished to the downside, with the Euro Stoxx 50 retreating by 0.3%. 

Summary

  • Asian equity markets were mostly lower this morning as caution dominated sentiment ahead of the release of key inflation data in the US. Shares in Japan, South Korea, mainland China and Hong Kong all fell in morning trade. Meanwhile, Australian equities rose as heavyweight banks and Qantas rallied. 
  • European and US equity futures were seen moving in opposite directions early morning as markets in Europe are expected to open in negative territory. 
  • Oil prices struggled to find their footing this morning after losing nearly 6% in the past three sessions, as a weakening demand outlook and a large build in US crude inventories kept downward pressure on oil prices. OPEC yesterday slashed its global oil demand growth forecasts for 2022 and 2023 by 460,000 and 360,000 barrels per day, respectively, while the US Energy Department also lowered its expectations for US and global consumption. 
  • US producer prices (PPI) rose 0.4% month-over-month (m/m) in September, above the consensus estimate of a 0.2% gain, and versus August’s downwardly revised 0.2% decrease. The core rate, gained 0.3% m/m, matching estimates and the prior month’s negatively adjusted rise. On a year-over-year (y/y) basis, the headline rate was 8.5% higher, north of expectations of an 8.4% increase and compared to the prior month’s unadjusted 8.7% rise. The core PPI was up 7.2% y/y last month, below estimates of a 7.3% rise and in line with August’s downwardly revised increase.  
  • Fed policymakers judged that the Fed needed to move to and then maintain a more restrictive policy stance in order to promote maximum employment and price stability, minutes from the September FOMC meeting showed. Also, officials agreed that hiking rates faster now would “prevent the far greater economic pain associated with entrenched high inflation.” 
  • The Austrian central bank chief, Robert Holzmann, said in an interview that the ECB can get close to its neutral level of interest rate by the end of the year if it hikes by a total of 125 basis points at its next two meetings. 
  • PepsiCo reported adjusted Q3 EPS of $1.97, above $1.84 estimates, as revenues grew 8.8% year-over-year to $22.0 billion, topping forecasts of $20.8 billion. The company noted that the strong US dollar negatively impacted its earnings and revenue growth, but its global business momentum remains strong. The company also raised its full-year EPS and organic sales outlooks. 
  • Shares of Moderna rose over 8% yesterday after Merck announced that it will exercise an option for the partnership with the company that gained prominence from its Covid-19 vaccine to develop and commercialise a cancer vaccine. 

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Life’s full of mysteries. Your money shouldn’t be one of them.