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US stocks declined as global markets digested red-hot UK CPI data and the latest FOMC Minutes - Newsquawk Asia-Pac Market Open

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Wednesday, Aug 17, 2022 - 09:42 PM
  • US stocks were lower as global markets ramped their hawkish central bank pricing in the wake of double-digit UK CPI data, although the release of the July FOMC minutes later softened the blow after noting that participants expressed a risk the Fed could tighten more than necessary.
  • DXY pared earlier gains and returned to relatively flat territory in the aftermath of the FOMC Minutes where officials expressed a risk that the Fed could tighten more than necessary.
  • Looking ahead, highlights include Australian Employment Change & Unemployment Rate, Japanese Securities Flows & 20yr JGB Auction, EU CPI & HICP, US IJC & Philly Fed.

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LOOKING AHEAD

  • Australian Employment Change & Unemployment Rate, Japanese Securities Flows & 20yr JGB Auction, EU CPI & HICP, US IJC & Philly Fed.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks were lower as global markets ramped their hawkish central bank pricing in the wake of double-digit UK CPI data, although the release of the July FOMC minutes later softened the blow after noting that participants expressed a risk the Fed could tighten more than necessary.
  • SPX -0.72% at 4,274, NDX -1.21% at 13,470, DJIA -0.50% at 33,980, RUT -1.80% at 1,983.
  • Click here for a detailed summary.

FOMC MINUTES

  • FOMC Minutes noted that all participants agreed a 75bps interest rate hike was appropriate and many officials saw a risk that the Fed could tighten more than necessary, while some participants said the policy rate would have to reach a sufficiently restrictive level to control inflation and remain there for some time. Furthermore, participants concurred future rate hikes would depend on incoming information and judged that at some point it would be appropriate to slow the pace of increases.
  • FOMC Minutes also stated that participants agreed there was little evidence inflation pressures were subsiding and that it would take a considerable time for the situation to be resolved, while participants said the strength of the labour market suggests economic activity is stronger than implied by the weak Q2, raising the possibility of upward GDP revision.

NOTABLE HEADLINES

  • Fed's Bowman (voter) said the labour market continues to be strong and the future of labour supply is uncertain, while she added that some retirees may feel compelled to return to work due to inflation and that high inflation and strong employment will likely create some pressure on labour and employment.
  • Atlanta Fed GDPnow Q3 tracker cut to 1.6% from 1.8% following the retail sales data.

DATA RECAP

  • US Retail Sales MM (Jul) 0.0% vs. Exp. 0.1% (Prev. 1.0%, Rev. 0.8%)
  • US Retail Sales Ex-Autos MM * (Jul) 0.4% vs. Exp. -0.1% (Prev. 1.0%, Rev. 0.9%)

FIXED INCOME

  • T-note (U2) futures settled 20 ticks lower at 118-24; Treasuries were sold as hot UK inflation ignited bear-flattening which was partially reversed after dovish FOMC minutes.

FX

  • DXY pared earlier gains and returned to relatively flat territory in the aftermath of the FOMC Minutes where officials expressed a risk that the Fed could tighten more than necessary.
  • EUR eked mild gains against the greenback despite the softer than expected GDP and Employment data from the bloc with the single currency helped by a deeper reversal in EGBs.
  • GBP was pressured despite hot CPI data which hit a 40-year peak and stoked further recession fears, as well as dimming the Pound’s outlook with the BoE now priced in for another 50bps rate hike.
  • JPY weakened on widening yield differentials but then pared some of the losses against the greenback post FOMC Minutes.

COMMODITIES

  • Oil prices were firmer but with price action choppy amid bullish inventories and broader risk aversion.
  • US EIA Weekly Crude Stocks w/e -7.056M vs. Exp. -0.275M (Prev. 5.458M), while SPR draw was 3.4M, making it a total draw of 10.5M.
  • OPEC Secretary General said he sees a likelihood of an oil-supply squeeze this year and is open for dialogue with the US still bullish on oil demand for 2022. Furthermore, he added it is too soon to call the outcome of the September 5th gathering, while spare capacity is at around the 2-3mln BPD mark and is "running on thin ice".
  • US judge vacated the lower court decision to block the Biden administration's pause on federal oil and gas leasing, while it was later reported that the Biden administration's pause on gas and oil leases was reinstated for the time being, according to Bloomberg.
  • Oil output at Kashagan was at 99,042 BPD on August 16th, significantly below its normal level of 400k BPD, according to Reuters sources.
  • Russia forecasts the average export gas price to more than double to USD 730 per 1000 cubic metres in 2022 and forecasts export gas price falling to USD 471.8 per 1000 cubic metres in 2023.

GEOPOLITICS

RUSSIA-UKRAINE

  • NATO Secretary General Stoltenberg said it is urgent that the IAEA is allowed to inspect the Zaporizhzhia nuclear plant in Ukraine.

OTHER

  • Iran's Foreign Minister said they informed Washington and the rest of the parties through the European mediator of observations and are waiting for the response, while Iran must make sure in any agreement that its red lines are respected and economic interests are achieved, according to Al Jazeera.
  • Iran is calling on the US to free jailed Iranians and said that they are prepared for prisoner swaps, according to Fars.

ASIA

NOTABLE HEADLINES

  • China's Vice Premier Han Zheng said they will ensure power supply for residents and key industries and prevent power cuts, while China will also step up measures to boost domestic consumption and will actively support exporters to gain orders, stabilise the market, secure grain, land and energy imports.
  • Chongqing is to curb power use for eight days for industry, according to CCTV.
  • Shanghai further strengthened health management measures for those returning from domestic epidemic-related areas.
  • China's military is to partake in a military exercise in Russia, although their participation reportedly has nothing to do with the international situation.
  • Taiwan's Defence Ministry said they detected 21 Chinese aircraft and five ships around Taiwan on Wednesday.
  • US State Department spokesperson Price said the US will continue to take steps to support Taiwan and there were separate comments from White House Chief of Staff Klain that China's reaction to Pelosi's Taiwan trip is unwarranted.
  • Chinese top diplomat Yang met Japan's security adviser on August 17th and reached some beneficial consensus, while China and Japan spoke candidly, in-depth and constructively, according to Xinhua.

EUROPEAN TRADE

  • European stock markets traded lower and the STOXX Europe 600 finished with losses of 1.0%.

DATA RECAP

  • UK CPI YY* (Jul) 10.1% vs. Exp. 9.8% (Prev. 9.4%)
  • UK Core CPI YY* (Jul) 6.2% vs. Exp. 5.9% (Prev. 5.8%)
  • EU Employment Flash QQ (Q2) 0.3% vs. Exp. 0.4% (Prev. 0.6%)
  • EU Employment Flash YY (Q2) 2.4% vs. Exp. 2.5% (Prev. 2.9%)
  • EU GDP Flash Estimate QQ (Q2) 0.6% vs. Exp. 0.7% (Prev. 0.7%)
  • EU GDP Flash Estimate YY (Q2) 3.9% vs. Exp. 4.0% (Prev. 4.0%)
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