MARKET WRAP – 11th August 2022
- Softer than forecast inflation numbers from the US overnight spurred Wall St and drove heavy selling of the USD.The NASDAQ closed +2.7%, the S&P +2.1% while the Dow Jones finished the session +1.5%. US yields edged lower while crude oil gained 1.3% to $91.60 a barrel. The DXY closed 1.1% lower with the AUD/USD peaking at 0.7109 before settling at 0.7080.
- Asian equities closed in the red with the CSI down 1.1%, as Chinese inflation hit a 2-year high of 2.7%, missing expectations of 2.9%. The ASX finished Wednesday’s session down 0.5%, with tech the largest contributor falling 3.8%. European equities fell on the open with the FTSE100 -0.3%, Eurostoxx 50 and DAX -0.6%. The 2-year US Treasury rate exceeds the 10-year by almost 50bps, the inversion, around the deepest since 2000. Brent crude fell 0.2% to $96.10 a barrel.
- US CPI for July was flat MoM, down from 1.3% and below expectations of 0.2% with the YoY number at 8.5%, down from 9.1% and below expectations of 8.7%. Core measures also fell and were also lower than expected printing at 0.3% MoM and 5.9% YoY, both lower by 0.2% than consensus. Released later in the NY morning, US Wholesale Inventories for June were confirmed at 1.8% against expectations of 1.9%. No reaction to the second-tier data.
- Fed’s Governor Evans hit the wires with some relatively hawkish comments from a known dove, outlining the strength of the US economy and noting that inflation was ”unacceptably high” and that the Fed would need to raise rates into 2023. Minneapolis Fed Reserve President Kashkari adding to the hawkish commentary in saying that the Fed had to get inflation back to 2% and was a long way of declaring victory, going on to add that a recession would not deter him from doing what was required and that the idea of cutting rates while inflation was so high was unrealistic. The comments saw US rates return almost to their pre-data levels while the greenback recovered off the lows though not before there were further modest gains for the antipodeans with the local unit reaching 0.7109 and NZD/USD topping out at 0.6434.
- AUD/USD climbed from 0.6947 lows to finish the Asian session at new daily highs of 0.6975. The dollar was offered into London lunch, as markets awaited the US CPI print. AUD/USD traded sideways from daily highs of 0.69785. NZD/USD climbed to 0.6316 highs. GBP/USD and EUR/USD made new respective highs of 1.2106 and 1.0238. USD/CAD fell steadily to 1.2865. USD/JPY continued to trade either side of 134.90.
- The USD sold off sharply in response to its softer numbers with US yields falling around 15bp across the curve. AUD/USD jumped almost 100 points to highs of 0.7067 while NZD/USD jumped to 0.6399. EUR/USD and GBP/USD both jumping around 1% to hit respective highs of 1.03465 and 1.2250. USD/CAD fell to 1.2819 with USD/JPY down to lows of 132.68. Elsewhere and equities liked the results with US futures jumping around 2% ahead of the cash open.
- After a brief pause, the USD took another leg lower heading into the London rate set. AUD/USD traded up through 0.7100 to hit 0.7102 while NZD/USD reached 0.6429, EUR/USD broke through 1.0350 resistance to touch 1.0369 highs and GBP/USD topped out at 1.2277. USD/CAD fell to 1.2751 while USD/JPY fell to 1.3203.
- Domestic focus will be on the August Consumer inflation expectations. Markets will be watching consumer wages, previously consumers have reported seeing weak wages growth and expectations. The share of workers saying they have received a pay rise has been modest, and needs to increase, markets are waiting for this to pick up.
- US PPI for July will be released tonight, markets expect the headline measure should show disinflation driven by a decline in energy prices during the month. The core (ex food and energy) measure could influence investor expectations for a more sustainable goods inflation to unfold over the course of 2H22
- AUD/USD comfortably cleared significant offering interest on its way to a high of 0.7109 overnight. The first level of top side resistance comes in at 0.7170 which coincides with the 50% retracement of this year’s move. Markets expect recent resistance at 0.7000/20 will now act as downside support.
|Equity Index||Daily % Change||Closing Level|
|Commodity||Daily % Change||Closing Level|
|ICE NAT GAS||0.2%||406.2|
|SGX IRON ORE||1.2%||110.9|
|Rates Markets||Yield||Daily Change|
|US 2 YEAR||3.26%||5.4|
|US 10 YEAR||2.78%||2.2|
|AUST 2 YEAR||2.72%||2.3|
|AUST 10 YEAR||3.18%||-2.9|