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US stocks staged a strong comeback from the initial CPI-triggered pressure - Newsquawk Asia-Pac Market Open

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Thursday, Oct 13, 2022 - 09:37 PM
  • US stocks finished with firm gains after staging a remarkable comeback from the early selling that was triggered by the hotter-than-expected US CPI data, while there were several theories cited for the bounce back in stocks including reports that an ECB staff model sees a target-consistent terminal rate of 2.25% which is beneath the 3.0% level that markets are currently pricing in. Furthermore, there was speculation of a potential fiscal U-turn in the UK, while some desks attributed the stock rebound to a short squeeze and some also suggested that the sell-off was overdone.
  • DXY whipsawed with early upside following the hotter-than-expected US CPI data, although later wiped out its gains as risk appetite improved with ECB sources suggesting a lower terminal rate than markets currently estimate and amid speculation of a potential U-turn on the UK's tax cut plans.
  • Looking ahead, highlights include New Zealand Business NZ PMI, South Korea Trade Data & Unemployment Rate, Singapore GDP & MAS Policy Decision, Chinese CPI, PPI & Trade Data, Supply from Australia & Japan. US Retail Sales, US University of Michigan Prelim Survey, Speeches from BoE's Bailey, Fed's George, Cook & Waller.

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LOOKING AHEAD

  • New Zealand Business NZ PMI, South Korea Trade Data & Unemployment Rate, Singapore GDP & MAS Policy Decision, Chinese CPI, PPI & Trade Data, Supply from Australia & Japan. US Retail Sales, US University of Michigan Prelim Survey, Speeches from BoE's Bailey, Fed's George, Cook & Waller.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks finished with firm gains after staging a remarkable comeback from the early selling that was triggered by the hotter-than-expected US CPI data, while there were several theories cited for the bounce back in stocks including reports that an ECB staff model sees a target-consistent terminal rate of 2.25% which is beneath the 3.0% level that markets are currently pricing in. Furthermore, there was speculation of a potential fiscal U-turn in the UK, while some desks attributed the stock rebound to a short squeeze and some also suggested that the sell-off was overdone.
  • SPX +2.60% at 3,670, NDX +2.30% at 11,034, DJIA +2.83% at 30,039, RUT +2.41% at 1,728.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • WSJ's Timiraos said "for the Fed, the September CPI report seals the case for a fourth consecutive 75-basis-point hike" and that "It calls into question the modal outlook from three weeks ago—that the Fed might be able to stop raising rates after 50 bps in December and 25 in February."
  • US President Biden said the CPI report shows some progress on the fight against inflation but there is more work to do. US President Biden met with his economic team on the global economy and markets, while he directed staff to remain in contact with key market actors.
  • US Treasury Secretary Yellen said CPI data shows more work is needed to address elevated inflation and said the Fed has the primary inflation responsibility but added the Biden administration is committed to doing what it can to bring down prices.

DATA RECAP

  • US CPI YY, NSA* (Sep) 8.2% vs. Exp. 8.1% (Prev. 8.3%)
  • US Core CPI YY, NSA* (Sep) 6.6% vs. Exp. 6.5% (Prev. 6.3%)
  • US Cleveland Fed CPI* (Sep) 0.7% (Prev. 0.7%)
  • US Initial Jobless Claims w/e 228k vs. Exp. 225.0k (Prev. 219.0k)
  • US Continued Jobless Claims w/e 1.368M vs. Exp. 1.365M (Prev. 1.361M, Rev. 1.365M)

FIXED INCOME

  • T-note (Z2) futures settled 15 ticks lower at 111-00+; Treasuries bear flattened after hot CPI although bounced off their lows on reports of a potential UK U-turn, while ECB staff reportedly model a lower terminal ECB rate than the market is pricing.

FX

  • DXY whipsawed with early upside following the hotter-than-expected US CPI data, although later wiped out its gains as risk appetite improved with ECB sources suggesting a lower terminal rate than markets currently estimate and amid speculation of a potential U-turn on the UK's tax cut plans.
  • EUR strengthened on the back of the intraday retreat in the dollar. There were initial hawkish comments from the ECB with both Simkus and Kazaks looking for 75bps at the next meeting and with Kazaks also eyeing "another big hike" in December, while sources later noted an ECB staff model put the target-consistent terminal rate at 2.25% which is lower than the 3% markets are pricing in, although policymakers were mixed about the model and feared it could include errors.
  • GBP outperformed amid speculation regarding another major U-turn from the UK government which could include an increase in corporation tax.
  • JPY was volatile with the currency pressured after the firmer-than-expected US CPI print although aggressively reversed the move despite the lack of reasoning behind it which led to murmurs of intervention which haven't been confirmed.

COMMODITIES

  • Oil prices finished higher in a choppy session with an initial fall in the wake of hot CPI data which gives the Fed scope to continue hawkish rate hikes and raises further risks of an economic recession that would be negative for oil demand, although prices then rebounded as the USD weakened and risk assets staged an aggressive comeback.
  • US EIA Weekly Crude Stocks w/e 9.880M vs. Exp. 1.75M (Prev. -1.356M)
  • IEA Monthly Oil Market Report lowered 2022 oil demand growth outlook by 60k BPD to 1.9mln BPD and 2023 demand growth forecast was cut by 470k BPD to 1.7mln BPD.
  • US White House Economic Advisor Deese said they are using SPR as a "temporary" bridge, while it was separately reported that US President Biden said he will have more to say about lowering gas prices next week.
  • White House spokesperson said US analysis showed Saudi Arabia that there was no basis to cut oil production and the US told the Saudis that they could wait until the next OPEC meeting to see how things developed, while the spokesperson claimed that other OPEC nations felt coerced by Saudi Arabia to support production cuts.
  • Senior US administration official said the US-Saudi meeting scheduled for October 17th has been cancelled which was to “send a message” to Saudi Arabia after the OPEC cuts, according to a Fox reporter.
  • White House Spokesman Kirby said the US is still working with the EU on a Russian oil price cap including the implementation, while he added that the US is going to look at future OPEC+ meetings as a gauge of Saudi's stance on Russian aggression.
  • Natural Gas Pipeline declared a Force Majeure at multiple locations.
  • Kazakhstan Energy Minister expects the Kashagan oil field to resume production of 400k BPD of oil (vs. 200k BPD currently) by the end of the month.
  • German natgas storage facilities hit the 95% November target three weeks early.
  • Chile's Codelco offered European clients physical copper at around USD 235/tonne for the next year (+84% Y/Y), according to sources.

GEOPOLITICS

RUSSIA-UKRAINE

  • Ukrainian President Zelenskiy said they cannot have diplomacy with Russia today and cannot respect leaders who are killing and not respecting international law.
  • NATO Secretary General said the circumstances in which NATO might have to resort to nuclear weapons are quite remote and he will not go into how exactly NATO will respond if Russia uses nuclear weapons, while he added that they will conduct nuclear deterrence manoeuvres next week, which are regular and annual with the goal of maintaining readiness, according to Al Jazeera.
  • EU foreign policy official said the Russian army will be eliminated if it uses nuclear weapons in Ukraine, according to Sky News Arabia.
  • Russia's Kremlin said the goals of the special military operation are unchanged but they can be achieved via negotiations, according to Russian press cited by Reuters.
  • Russian Ambassador to the UN said Moscow delivered a list of concerns to the UN about the Black Sea grain deal, according to Reuters sources.

OTHER

  • North Korea launched a short-range ballistic missile which was fired from near Pyongyang, according to the South Korea Military. Furthermore, North Korea said it took strong military countermeasures after South Korean artillery fire, according to KCNA.
  • South Korea reportedly scrambled F-35s in response to a North Korean aircraft, while it was reported that nearly a dozen North Korean military aircraft were identified flying near the inter-Korean air boundary, according to Yonhap.
  • White House spokesperson said the US is not close to securing implementation with Iran on a nuclear deal.

ASIA-PAC

NOTABLE HEADLINES

  • Chinese health official said China will continue to strengthen COVID prevention and control, as well as resolutely guard against large-scale outbreaks, while the official added the dynamic zero-COVID policy in the past three years has proven to be effective, feasible and scientific.
  • US FCC is set to ban all US sales of new Huawei and ZTE equipment, as well as some sales of video surveillance equipment from three other Chinese firms amid national security concerns, according to Axios citing sources.
  • IMF official Panth said Japan's JPY buying was likely a signalling action and the impact of such intervention does not last long, while Panth added that it is not the time for the BoJ to tweak YCC.

EUROPEAN TRADE

  • European stock markets were higher and the STOXX Europe 600 finished up 0.9%.

NOTABLE HEADLINES

  • A Bank of England fix to ease pension schemes' cash crunch by getting banks to assume the role of rescue lender is being shunned by some of the biggest banks which say that the returns on offer do not reward the risks involved, according to sources.
  • UK PM Truss and Chancellor Kwarteng are focused on delivering growth plans and their position has not changed. Furthermore, UK PM Truss spokesperson earlier said there will be no further U-turns on Truss economic plan and that the PM is focussed on growth.
  • UK Chancellor Kwarteng said he is focused on delivering the mini-budget to get growth going and responded that his total focus is on delivering the mini-budget when questioned about reports over a potential reversal in corporation tax, while he also said that he is not going anywhere, according to the BBC. Furthermore, Chancellor Kwarteng said "let's see" when asked if markets have improved because they are expecting a U-turn on corporation tax, according to The Telegraph.
  • UK officials were said to be working on a U-turn for PM Truss's tax cut plan, according to Bloomberg. It was separately reported that proposed changes to the UK's corporation tax and dividend tax were thought to be under discussion when talking about scrapping some proposals of the Chancellor's mini-budget, according to Sky News. The Sun also noted that UK PM Truss is considering raising corporation tax next year in the U-Turn but a source said it will not go all the way up to 25% and that the UK will remain competitive on the international stage.
  • Downing Street is denying any changes to the mini budget, although sources stated discussions are underway over which bits might yet be junked given the scale of the concern, according to Sky News.
  • ECB's Nagel said they must avoid un-anchoring of inflation expectations and that the current data points to a robust interest rate move, while he sees consensus at ECB that QT will start in 2023.
  • ECB's Kazaks said rates should be raised by 75bps in October and another big hike in December, while the ECB should then slow down but complement via other measures like balance sheet tightening.
  • ECB's Simkus said he does not see financial instability in the Eurozone and that there is a need to discuss TLTRO requirements, while Simkus is looking for a 75bps rate hike at the next meeting and a 50bps or 75bps move in December.
  • ECB staff model reportedly puts the target-consistent terminal rate at 2.25%, but policymakers gave the new model a mixed reception and fear it could include errors, according to Reuters sources. Furthermore, the report noted that ECB staff see the need for fewer rate hikes than markets now estimate to tame inflation.
  • ECB discussed the timeline for the balance sheet reduction at the Cyprus meeting earlier this month and it may tweak language on reinvestments at the October meeting and then may outline plans for a balance sheet reduction in December or February meetings, according to sources cited by Reuters.
  • USTR and EU VP agreed to increase the pace of global steel arrangement talks, according to a USTR statement.
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