25 Jan

Inflation in Australia and New Zealand is on the rise. The US reporting season is gaining momentum

January 25, 2023

By JustMarkets

The US reporting season continues to gain momentum, but indices are reacting sluggishly. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 0.31%, and the S&P 500 Index (US500) decreased by 0.07%. Technology Index NASDAQ (US100) lost 0.27%.

In the technology sector, gains in Apple (AAPL) stocks were offset by declines in Alphabet (GOOGL) stock. The US Department of Justice filed a lawsuit against Google, claiming that the search engine giant violated the antitrust laws by abusing its monopoly in advertising technology. Microsoft Corporation (MSFT), which ended the day just below opening levels, rose by 4% on the release of its report. The company’s quarterly earnings beat Wall Street estimates.

Investors are betting that the Fed will stop raising rates soon, pause briefly, and then begin cutting rates closer to the end of the year. Why are investors waiting for a rate cut? For investors, lower rates make borrowing less expensive and tend to raise the price of everything from stocks to bonds and digital assets. Fed officials predict that their key short-term rate, now at 4.5%, will eventually reach 5-5.25%. Futures markets show that most investors expect the rate to peak at 4.75-5%. Fed officials point to a robust labor market as a factor that can keep inflation high. Now at 3.5%, the unemployment rate is the lowest in 50 years. Businesses continue to raise wages to retain and attract workers, which boosts consumer spending. Employers, in turn, tend to pass on their higher labor costs to their customers in the form of higher prices. Both trends, the Fed fears, will keep inflation well above the 2% target. But the latest news suggests that the labor market is already starting to fall, and the Fed will be forced to stop raising rates.

Equity markets in Europe traded without a single dynamic on Tuesday. German DAX (DE30) yesterday declined by 0.07%, French CAC 40 (FR40) gained 0.26%, Spanish IBEX 35 (ES35) jumped by 0.33%, British FTSE 100 (UK100) yesterday closed the day down by 0.35%.

Yesterday, GfK Consumer Confidence data for Germany showed signs of further improvement. The seasonally adjusted S&P Global Eurozone PMI Composite Output Index was above the 50 mark, indicating that business activity in the region is recovering and the risk of recession is declining.

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Norway’s gas riches are causing a wave of optimistic forecasts for the Norwegian krone. Danske Bank A/S and Bank of America Corp. believe the NOK currency is a bargain since Norway is now receiving trillions of kroner from energy exports. Over the past decade, the króna has lost about a third of its value against the euro. According to Morgan Stanley, the Norwegian currency is likely to rise 15% against the dollar this year.

Natural gas is rising cautiously amid projected colder weather. Growing rumors of cold weather approaching the United States and the rest of the Northern Hemisphere are boosting natural gas prices.

Asian markets also traded flat yesterday. Japan’s Nikkei 225 (JP225) added 0.57%, and China’s FTSE China A50 (CHA50) did not trade and will not trade until the end of the week due to the holidays. Hong Kong’s Hang Seng (HK50) also did not trade, India’s NIFTY 50 (IND50) decreased by 1.1%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.06%.

The Australian dollar reached a 5-month high on inflation growth. Consumer prices jumped from 7.3% to 8.4% on an annualized basis. The core CPI quarterly reading was 1.9% in December, instead of the expected 1.6% and 1.8% previously. The preferred RBA average CPI was 6.9% annualized through the end of 2022. Interest rate futures markets raised the likelihood of a 25 basis point RBA hike at the February 7 monetary policy meeting.

In New Zealand, the Consumer Price Index rose to a 7.2% annualized rate in the fourth quarter, slightly above analysts’ expectations of 7.1% but below the RBNZ forecast of 7.5%. The data suggests that the RBNZ will raise interest rates by another 0.5% at its next meeting.

The key consumer price indicator in Singapore remained at 5.1% y/y, slightly higher than forecast. Overall inflation fell to 6.5% year-on-year from 6.7%. The central bank has previously stated that core inflation is likely to remain around 5% in early 2023. It also forecast a core inflation rate of between 3.5% and 4.5% in 2023, with the overall inflation rate ranging from 5.5% to 6.5%.

The Japanese prime minister said Sunday that he would appoint a new governor of the Bank of Japan next month, as Kuroda’s second five-year term expires on April 8.

S&P 500 (F) (US500) 4,016.95 −2.86 (−0.071%)

Dow Jones (US30) 33,733.96 +104.40 (+0.31%)

DAX (DE40) 15,093.11 −9.84 (−0.065%)

FTSE 100 (UK100) 7,757.36 −27.31 (−0.35%)

USD Index 101.94 -0.20 (-0.20%)

Important events for today:
  • – Australia Consumer Price Index (q/q) at 02:30 (GMT+2);
  • – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
  • – German Ifo Business Climate (m/m) at 11:00 (GMT+2);
  • – Canada BoC Interest Rate Decision at 17:00 (GMT+2);
  • – Canada BoC Monetary Policy Report at 17:00 (GMT+2);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+2);
  • – Canada BoC Press Conference at 18:00 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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