US Inflation Remains Stubbornly High
AUD
AUD is down against most majors as global inflation fears run rampant. Yesterday the ASX closed +0.65% in a wide rally with real estate stocks at the forefront, while Asian equities finished the session largely higher, with the Hang Seng underperforming its peers down 0.2%. A mixed session for commodities with Iron Ore +0.6%, Gold -0.4% and Crude Oil +1.4%. In data, yesterday saw NAB’s Business Confidence Survey report it’s strongest headline figure since May, with NAB Group Chief Economist Alan Oster highlighting “Growth in purchase costs and labour costs remains very strong’. Little in the way of domestic data today, although last night's eye-opening US inflation print (see below) is expected to have ripple effects through Asian markets, with equities likely to take a significant step lower.
USD
The AUDUSD opens heavily down at 0.6731, having taken a battering off the back of strong US inflation data. The highly-anticipated inflation figures were reported early in the NY session, being significantly above expectations. August CPI printed at +0.1%, off the back of flat, and with an expectation of -0.1%. This takes the YoY figure to 8.3% and increases the chances of yet another sizeable rate hike from the Fed in an attempt to stamp out rising costs and recessionary fears. Markets now pricing in an 83bps hike at next week's meeting. Wall St not liking the news, having experience its worst day since June 2020. The NASDAQ closed 5.2% lower while the S&P 500 and Dow Jones ended -4.3% and -3.9% respectively. To the day ahead, the headline monthly PPI figure is expected at -0.1%, with Core PPI expected at +0.3%. These reflect the change in price of finished goods and services sold by producers, being a leading indicator of consumer inflation. All markets will be keeping a close eye on this as inflation in the US appears to be very stubborn indeed.
EUR
The AUDEUR opens down at 0.6752, with markets experiencing the impact of last night’s strong US inflation print. Equities took a hit, with the DAX and CAC falling -1.6% and -1.4% respectively as risk-off sentiment resumes. The ZEW Economic Sentiment report showed investor confidence in Germany, being already below its pandemic low, plummeted further amidst intensified fears of a Winter energy squeeze. Little in the way of data today, with monthly Industrial Production expected to fall -1%. This forms the first contractionary expectation since May and, if correct, could reflect reduced business expenditure as Europe continues to experience declining economic health.
GBP
The AUDGBP opens down at 0.5860 as global recessionary fears strengthen. In the UK, the ILO Unemployment Rate printed at 3.6%, beating expectations of 3.8%. A strong labour market has been the UK’s foothold within a sea of bleak economic data, as the BoE seeks to tame the rising cost of living. A big day for the UK, with August inflation data out while the Bank of England rate decision has been pushed out to September 22. Given the rapid increase in price of energy, food and services, the yearly headline rate is expected to exceed 10%. More pain is expected as the BoE forecasts a peak in headline inflation later this year, sitting at 13%. In light of this, markets are expecting the BoE to front-load monetary policy implementation via a 75 basis point rate hike, especially given concerns about medium term inflation expectations de-anchoring.
NZD
The AUDNZD opens slightly higher at 1.1227 with little to entertain markets from the Kiwis. Yesterday’s Food Price Index reflected an average monthly increase in food prices of 1.1%, furthering the steady increases since March with fruit and vegetables leading the WAY UP +4.1%. This morning, the Current Account came in at -5.22B, falling short of expectations of -4.7B and reflecting a decline in the value of NZ’s transactions relative to the rest of the world. Even so, this is the strongest figure from the Kiwis over the past 12 months. All eyes looking to tomorrow’s quarterly GDP announcement, tipped at 1%. Fingers crossed the Kiwis continue to stave off inflation and lead the way.