US Inflation Increases Despite Rising Interest Rates
AUD
The AUD trades mixed this morning, being largely strong-armed by US inflation data released last night. Asian equities closed the session lower with the Hang Seng the worst performer down 1.9%. The ASX finished Thursday’s session -0.1%, in a broad sell-off that was softened by a 1.4% increase in financial stocks. A somewhat mixed session for commodities, with Gold -0.1%, Silver flat, Iron Ore gaining 0.4%, and Copper stealing the show gaining 1.1%. Yesterday was whisper-quiet in the way of economic data, with MI Inflation Expectations released on-expectations of 5.4% - not moving the needle. Today is silent on the data front, so AUD price action will be dictated by international data points, namely Retail Sales released out of the US tonight. In China today, the September data dump is expected to show an uneven recovery from the trough in 2Q22, as the production side strengthened while the service sector lost momentum. In the external sector, export growth could continue to soften while import growth may enter the negative region on weak domestic and external demand. On the inflation front, PPI inflation could trend down further in September, while CPI inflation is likely to rebound on strong pork and vegetable prices. Looking ahead, Monetary Policy Meeting Minutes will be released on Tuesday morning which could impact the Aussie.
USD
AUDUSD trades higher this morning, after being annihilated in the wake of strong US inflation data, having plummeted to over 2-year-lows of 0.6167 before reversing its losses and rising back from the ashes, trading at 0.6296 at time of writing. Strong inflation data and higher yields weren’t enough to stop solid gains on Wall St overnight with the Dow Jones closing +2.8%, the S&P 500 +2.6% and the NASDAQ +2.2%. U.S 2 year yields rose 18bps to 4.47%, while oil also pushed higher to close above $89 a barrel. A number of data points were released out of the US yesterday, with Unemployment Claims coming in at an unimpressive 228k based on a forecast of 225k. However, the market-moving input was reserved for CPI data. CPI for September printed at +8.2% YoY and +0.4% MoM, exceeding expectations of +8.1% and +0.2% respectively, and Core CPI m/m printing at 0.6% compared to an expected 0.4%. In light of this, Biden affirmed the fight on inflation as his ‘top priority’. Seema Shah, Chief Global Strategist, Principal Asset Management said “There can’t be anyone left in the market who believes the Fed can raise rates by anything less than 75bps at the November meeting. In fact, if this kind of upside surprise is repeated next month, we could be facing a fifth consecutive 0.75% hike in December with policy rates blowing through the Fed’s peak rate forecast before this year is over.” Looking ahead, Retail Sales data for September will be released this evening. Headline nominal retail sales should continue to face headwinds from the pullback in gasoline prices. Support may, however, come from the increase in auto sales volumes in the month. There are offsetting forces at work that could impact core sales. Positive real disposable incomes should provide a boost. Nonetheless, goods consumption remains stretched and the consumption rotation theme is likely to have persisted.
EUR
AUDEUR trades lower this morning, following suit of the AUDUSD and was similarly punished following US inflation data, dropping to almost 8-month-lows of 0.6393, before recovering to trade at 0.6439 at time of writing. European equities enjoyed solid gains, with the DAX gaining 1.5%, and the CAC gaining 1%. Yesterday was lackluster on the data front, with German Final CPI m/m printing bang-on expectations of 1.9%. In today’s data, nothing to heavily influence the markets, with German WPI m/m, French Final CPI m/m, and Trade Balance to be released out of the Eurozone. Looking ahead, German Buba President Nagel Speaks tomorrow.
GBP
AUDGBP trades significantly lower this morning, having stooped to 7-month-lows of 0.5520 off the back of UK Prime Minister Liz Truss’s plans to rip up the government’s ‘mini’ Budget in a desperate attempt to rebuild market confidence. However, unlike its counterparts, struggled to make a comeback in the aftermath, trading at 0.5557 at time of writing. In equities, the FTSE did not perform as well as it’s European counterparts, gaining 0.4% at the close. Government insiders are reporting that Kwasi Kwarteng, Chancellor of the Exchequer, is expected to scrap measures in his 43bn package of unfunded tax cuts, which could mean that almost everything in the budget is up for grabs. Also, BOE Credit Conditions Survey was released, and MPC Member Mann hit the wires with nothing of interest to note. The next major piece of data for the GBP will be released next Wednesday, with CPI y/y expected in the 10% range. The BOE has some further work to do.
NZD
AUDNZD trades slightly lower this morning, managing to largely dodge the bullet of the US inflation data, trading at 1.1159 at time of writing. Today in Kiwi data from across the ditch, New Zealand’s manufacturing sector saw an easing of expansion in September, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI for September was 52.0 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 2.8 points lower than August, and the lowest level of activity since June. BusinessNZ’s Director, Advocacy Catherine Beard said that the September result could not build on the above average growth experienced during the previous two months. Looking ahead, BusinessNZ Services Index will come out on Monday, however all eyes will be on the important CPI q/q data to be released on Tuesday.