Early Morning Call: USD easing for a third day

APAC equity markets

Asia-Pacific equity markets rose overnight, following the lead of US indices yesterday.

China’s CSI 300 and Hong Kong’s Hang Seng outperformed the region, as China consumer price index (CPI) unexpectedly fell in August by 0.1% on a month-on-month (MoM) basis. Economists had anticipated an increase of 0.2%. Year-on-year (YoY), CPI increased 2.5%, slower than the 2.7% recorded in July, and missing expectations of 2.8%.

Producer price index (PPI) hit an 18-month low, as it rose by 2.3%, down from the 4.2% posted in July, and below consensus of 3.1%.

The latest China inflation data lifted industrial metals, easing concerns about falling demand due to higher prices. Copper and aluminium rose as much as 2% on the news.

In Canada at 1.30pm, economists expect the unemployment rate to rise to 5% in August from 4.9% the previous month. And a bit later at 3pm, US wholesale inventories are forecast to show a month-on-month rise of 0.8% for the month of July, down from 1.9% in June.

Currency markets

On the currency markets, the dollar basket is off its two-decade high, and on track to post its first weekly decline after three straight weeks of gains. The euro is back above $1, after the European Central Bank (ECB) raised its interest rates by 75 basis points (bps) and signalled that more hikes were to come. The main refinancing rate now stands at 1.25% and the deposit facility rate at 0.75%, both at their highest level since 2011.

In its statement, ECB Chief Christine Lagarde said she expects interest rates to rise further as “inflation remains far too high and is likely to stay above our target for an extended period.” Inflation increased by 9.1% in August, and the ECB's new projections see it peaking near this level just before the end of this year.

The ECB also cut its growth projections. It expects economic stagnation over the winter months with growth to fall sharply in 2023, down to 0.9% from 2.1%.

Commodities

The dip in the dollar brings some support to gold, now set for a small weekly gain.

Oil prices are off their multi-month lows but poised to post a second week of losses in a row. Markets await Baker Hughes rig count data tonight at 6pm.

Last week, total rig count fell by five to 760, which was entirely due to a decline in oil rigs in operation. The number of producing oil rigs fell by nine to 596, while the number of gas rigs rose by four to 164.