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Early Morning Call: USD drops after CPI data as global equity markets rally

Equity markets see biggest rally in two years as US inflation comes in weaker than expected and China cuts Covid quarantine period for travellers.

Equity market overview

Equity markets continue to feel the effects of lower-than-expected US CPI data published yesterday afternoon.

Consumer price index in the US rose by 7.7% in October year-on-year (YoY), cooling from September’s 8.2% gains, and lower than the 8% expected by economists. Core CPI rose by 6.3% YoY, missing consensus of a 6.5% increase.

This lower-than-expected print supports the case of a slowdown in the pace of Federal Reserve (Fed) rate hikes. Market participants are now predicting a 71.5% chance of a 50 basis-point hike at the Fed’s next meeting in mid-December.

US indices yesterday saw their biggest rally in two years. Dow Jones rose by 3.7% and the S&P 500 by 5.54%. Tech stocks reacted the most to the CPI release, sending the Nasdaq Composite 7.35% higher, its best performance since March 2020.

In Europe, the DAX benefited the most from the CPI-induced rally, closing 3.51% higher.

Overnight, Asia-Pacific indices posted strong gains, led by the tech stock-heavy Hang Seng index.

Elsewhere on the equity market, Redrow says that value of net reservations in the first 18 weeks of the financial year is down 19% YoY. The group estimates build cost inflation of around 7% in FY 2023, which will have an impact on its operating margin: 18% expected for the full year, compared to 19.2% in the previous year.

Richemont posted a net loss of €760 million in the first half (H1), after the luxury group had to set aside €2.7 billion following its part exit from online fashion retailer YOOX Net-A-Porter.

If we remove the impact of the write-down, the owner of Cartier increased its profit by 40% to €2.1 billion. Sales increased by 24% to €9.67 billion, partly helped by a recovery in the Asia-Pacific region.

ASML Holding yesterday afternoon announced a €12bn share buyback programme to run through 2025. In the announcement ahead of today’s investors' day, the company said it expects revenue of €30bn to €40bn by 2025, up from a previous estimate of €24bn to €30bn.

Reuters is meanwhile reporting that troubled crypto exchange FTX is scrambling to raise about $9.4bn from investors and rivals. It comes as chief executive, Sam Bankman-Fried urgently seeks to save the business that has been buffeted by a rush of customer withdrawals.

Forex

The US dollar had its worst day since 2009. The dollar basket fell to its lowest level since the end of August.

Precious metals naturally benefited from the fall of he greenback. Gold rose to a two-and-half-month high and is on track to post its best weekly performance since July 2020. Silver rose to a five-month high, and platinum to an eight-month high. Copper hit a near-five-month high on hopes that dollar weakness would boost the metal's demand.

Macro overview

In Japan, producer price index (PPI) rose 9.1% in October from a year earlier. The rise was slower than a record 10.2% jump in September but exceeded a median market forecast for an 8.8% gain.

The UK economy shrank by 0.2% quarter-over-quarter (QoQ) in the third quarter (Q3), better than the -0.5% expected by economists. Industrial production fell by 3.1% in September YoY, compared to expectations of -4.3% YoY.

Later this afternoon, the University of Michigan consumer sentiment is expected to fall to 59.5 in November, from 59.9 the previous month. This would be the first decline after four straight months of gains.


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