Early Morning Call: end of oversized interest rate hikes in sight?

Macro overview

It was a positive start of the month for US indices. The Dow Jones closed yesterday’s session up 2.66%, the S&P 500 rose 2.59%, and the Nasdaq Composite by 2.27%.

The Asia-Pacific region followed suit, with Australia’s S&P/ASX 200 outperforming the region as the Reserve Bank of Australia (RBA) raised interest rates by 25-basis points (bps) to 2.6%. If this makes it the highest level in more than nine years, the market was expecting a 50 basis-point hike.

The move benefited the equity market but affected the Australian dollar. AUD/USD fell as much as 1% at the announcement before paring some losses.

Rates are expected to increase further. The RBA repeated its commitment to bring inflation down to target levels. Inflation is still too high and should remain so for months to come. The bank expects consumer inflation to rise about 7.75% in 2022, above 4% in 2023, and around 3% in 2024.

Elsewhere, several Fed presidents and board members' speeches are expected today, among them Cleveland Fed president Loretta Mester, San Francisco Fed president Mary Daly, and New York Fed chief executive John Williams. Yesterday, Williams already said that while they can see growing signs of cooling inflation, underlying price pressures remain too high: "Clearly, inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential. Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done."

Williams did not share his views on what the next Federal Reserve (Fed) rate hike should be. Many are speculating that the Fed will again hike by 0.75 percentage points.

The US dollar remains on the back foot this morning. The US Dollar Basket retreated yesterday for a fifth consecutive day. This benefited commodities, and especially precious metals: gold now trades just below $1,700, platinum gained $60 in yesterday's session, and silver hit a three-month high.

At 10am producer price index in the Eurozone is expected to accelerate in August. Economists see a month-on-month (MoM) increase of 4.9%, after 4% in July. The year-on-year (YoY) rise is forecast to reach 43.1%.

In the US, factory orders are expected to rise by 0.3% in August on a month-on-month basis.

Equities overview

Elsewhere on the equity market, Greggs PLC said in a trading statement its sales rose 14.6% in the third quarter (Q3), adding its full-year (FY) outcome will be in line with expectations.

Investors will remain attentive to Credit Suisse Group AG (CH). Shares of the Swiss bank recovered their losses and ended yesterday’s session down around 1% after a big market rally. The stock had dropped as much as 10% at the start of trading after the Financial Times reported the Swiss bank's executives are in talks with its major investors to reassure them amid rising concerns over the lender's financial health.

Commodities

Oil prices are on the rise this morning, and the market is waiting for tomorrow's OPEC+ ministerial meeting in Vienna, where members will be discussing output cuts that could go above one million barrels per day (bpd).

Last month the organisation cut production by 100,000 bpd, signalling it would do what it takes to maintain oil price stability. In September, oil prices retreated for a fourth straight month.