Early Morning Call: volatility remains in the markets after US CPI data

Equity market overview

European equity markets opened today’s session lower, falling further in reaction to higher-than-expected consumer price index (CPI).

Yesterday, US indices tumbled, with tech stocks leading losses. The Nasdaq Composite dropped 5.16%.

Overnight APAC equity markets also tanked. The Nikkei 225 shed 2.78% and S&P/ASX 200 lost 2.58%. Yesterday the headline CPI figure fell on a year-on-year (YoY) basis, although not as much as expected: 8.3%, after 8.5% the previous month. Economists had anticipated 8.1%.

Core CPI pace accelerated more than expected: 6.3%, compared to consensus of 6.1%. US treasury yields rose on the news, and the yield curve inversion widened. There is now little doubt for the market that the Federal Reserve (Fed) will go for another oversized hike.

Shortly after the release of CPI data, Fed swaps showed a 75 basis-point (bps) hike fully priced for September. And as the day progressed, the odds of a 100 bps hike by the Fed increased to 35%.

In the UK, consumer price index rose by 9.9% in August YoY, lower than the 10.2% expected. Producer price index (PPI) also decelerated in August to 16.1%, from 17.4% the previous month. Sterling hardly reacted to the news.

In the US at 1.30pm, producer price index is expected to fall 0.1% in August MoM. Year-on-year, the index is expected to rise 8.8%, decelerating from the 9.8% recorded in July.

In France, prime minister, Elisabeth Borne, is due to give an update on the gas price gap plan. It is expected to be kept in place next year, and French consumers should expect a 10% increase. The 30 cents rebate on fuel prices should disappear in 2023.

Yesterday evening, French finance Minister, Bruno Le Maire, cut France's 2023 growth outlook to 1% from 1.4%. Inflation is seen falling to 4.2% in 2023, from 5.3% this year.

Elsewhere, Redrow PLC says that housing demand is moderating to historical levels following two strong years for the sector. The house builder posted a 31% rise in annual profit to £410 million.

Dunelm Group PLC reported a 32% rise in profit before tax for the year at £209m and expects to deliver about 50% gross margin in 2023, slightly lower than the 51.2% it saw in 2022.

In the US, Twitter's shareholders voted yesterday to approve a deal with Tesla CEO, Elon Musk, to buy the company for $44 billion.

Commodities

On the commodity market, oil prices are little changed this morning, after reacting negatively to US CPI data yesterday afternoon. There was also no reaction to the latest API inventories.

Yesterday evening the American Petroleum Institute reported a crude oil stock increase of six million barrels, as the Department of Energy released 8.4 million barrels from its Strategic Petroleum Reserves.

Gasoline stocks fell by 3.23 million barrels, while distillates stocks rose by 1,75 million barrels.