US Inflation Reaches 40 Year High
AUD
The Aussie Dollar opens largely flat across the board although enduring very choppy trading conditions in the wake of record inflation figures out of the US which has thrown a cat amongst the pigeons (see USD section below). Asian equities finished the session largely higher, with the Hang Seng underperforming its peers down 0.2%, while the Shanghai Comp gained 0.1%, the ASX climbed by 0.2% and NIKKEI the best performer up 0.5%. Commodities were down with Gold losing 0.3%, while Iron Ore suffered worst, down 1.5%. In terms of key market movers, the focal point was the aforementioned recent record inflation numbers from the U.S. reported at an annual rate of 9.1% which is the highest level in over 40 years. Adding to the surprises overnight, the BOC hiked rates by 100 bps (75 bps expected) setting a new tone of bullish hikes for the market regarding the severity of expected future decisions of other central banks going ahead. This morning we will the Aussie MI Inflation Expectations followed by the much more important Employment data with the Unemployment Rate expected to drop from 3.9% to 3.8% at 11.30am.
USD
The Aussie is slightly down against the Greenback amid very choppy market conditions, falling to 0.6725 finding support to rebound to a 24 hour high of 0.6803, mellowing out to trading at 0.6746 at time of writing. These volatile conditions driven by last night's US CPI data, which came in at 9.1%, 0.2% higher than expectations, the highest inflation figure since the early 80s. 2 year USD yields surging in response as markets priced in 150bps of hikes through the next 2 FOMC meetings. U.S equities were lower with the NASDAQ 0.2%, the Dow Jones and the S&P 500 were both 0.7% lower. Oil was steady at around $96 a barrel. In the aftermath of the US inflation data, The Federal Reserve’s Member Bostic said that the data was concerning and “everything is in play” as some major banks changed forecasts to a 100bp hike from the FOMC later in July and interest rate futures already pricing in 91 bps worth of an increase. Fed’s Member Barkin also on the wires reiterating inflation was too high. Looking ahead tonight at 10:30pm we have PPI m/m figures, followed by Core PPI m/m and Unemployment Claims.
EUR
The Aussie dollar peals off from its gradual ascent against the Euro softening from yesterday’s high of 0.6760 to currently be trading at 0.6710 at time of writing. Eurozone Equities in the red; the CAC suffered -0.7%, Eurostoxx down -0.5% and the DAX fairing worst losing -1.2%. Out of the Eurozone yesterday we saw French Final CPI m/m met expectations of 0.7%, followed by Industrial Production m/m above expectation of 0.2%, printing a gain of 0.8%. The ECB’s Villeroy hit the wires commenting that the exchange rate is more about a strong dollar than a weak Euro. He added that the ECB watches the Euro rate closely as it is important for prices. Eurozone May Industrial Output increased by 0.8% m/m, beating estimates of 0.3%. Looking ahead German WPI m/m print set later in the afternoon followed by the EU Economic Forecasts that will give us an understanding of the EUs Economic strategies for the next 2 years.
GBP
AUDGBP pair trading in choppy conditions currently at 0.5674 at time of writing. Yesterday we saw a slew of data out of the UK that has still yet to find a replacement for PM Johnson. GDP m/m data printed better than expected with the UK economy growing 0.5%, against predicted 0.1% with a previous of -0.2%. UK industrial output rose 0.9% m/m, also beating estimates of 0.0%. This followed by less significant releases of Construction Output m/m, Index of Services 3m/3m, Industrial Production m/m and Manufacturing Production m/m all above expectations, with only the Goods Trade Balance falling short. In Equities the FTSE 100 suffered falling a significant -1.15%.No data of note due from the UK tonight.
NZD
Yesterday the RBNZ raised interest rates by 50 bps as expected, resulting in a current cash rate of 2.5%, which actually initially weakened the NZD, allowing AUD to forge ahead to 1.1063, however now that the dust has settled the AUD opens flat on yesterday's open at 1.1021. In making its decision, the RBNZ said that whilst there were near-term risks to runaway inflation (thus the rate hikes), but there were also mid-term risk to growth, which could be interpreted as a signal the potential for monetary policy easing after the current tightening cycle runs its course. The RBNZ anticipates the cash rate at 3.5% in November this year and a terminal (peak) interest rate at 4% next year. No data of note for today.