Early Morning Call: UK core CPI reaches new high at 6.5%

Equity market overview

The rebound in US equity markets continued yesterday, supported by strong earnings reports. It was, however a mixed session overnight in the APAC region. In Europe, indices are hesitant at the start of the day.

The UK consumer price index (CPI) rise accelerated by 10.1% in September year-on-year (YoY), matching the July 2022 high, and beating expectations of 10%. Core CPI increased by 6.5%, also beating consensus.

Central Banks

The Bank of England (BoE) says the first sale of gilts held in its asset purchase facility would take place on November 1 in light of the government's plan to make a fiscal announcement on the previously planned date of the end of October.

According to a Reuters poll, the European Central Bank (ECB) will go for another 75-basis point increase when it meets on October 27.

Earnings

BHP Group's quarterly iron ore output rose during its fiscal first quarter (Q1). The group produced 72.1 million tonnes of iron ore in Q1, up 2%, despite an 18% fall in spot prices over the quarter. BHP left its annual production and cost guidance unchanged.

ASOS' pretax profit fell 89% to £22 million. Gross margins fell 180 basis points to 43.6%. In its statement, the clothing retailer talked of a weakening consumer environment.

ASML Holding posted what looks like a positive thrid quarter (Q3) report. Net sales came at €5.8 billion , higher than the €5.5bn expected by the market. Gross margins reached 51.8% in the period, 150p basis points higher than consensus. The semiconductor manufacturing equipment maker sees fourth quarter (Q4) sales between €6.1bn and €6.5bn, compared to analysts Q4 expectations of €6.13bn.

JustEatTakeaway.com said in its trading statement this morning it made an underlying profit in the third quarter sooner than previously forecast, after cutting expenses on delivery costs and operations.

In the US, Netflix shares rose as much as 14% in extended hours, after the group published better-than-expected earnings and net subscriber additions. Netflix posted earnings of $3.10 per share, almost $1 more than expectations. Revenue reached $7.93, also beating forecasts. The group said it added 2.41 million subscribers in the quarter. The market had anticipated a one million subscriber increase.

Netflix now has a total of 223.1 million subscribers around the world. In terms of subscribers, Netflix came up with an upbeat forecast. The streaming giant expects to pick up 4.5 million customers in the fourth quarter, higher than the 4.2 million forecast by Wall Street.

Netflix considers itself in a much better position than its competitors and estimates it will end 2022 with combined operating losses of "well over $10 billion," compared with Netflix's annual operating profit of $5 billion to $6 billion. Netflix is about to launch a $7-per-month streaming plan with advertising to attract cost-conscious customers.

Netflix did not disclose how many new subscribers, or how much revenue, it expects from the new plan and warned it will no longer provide quarterly guidance for new customers. The company will continue to issue forecasts for revenue, operating income and other categories.

Before market opens, Procter & Gamble is expected to post earnings of $1.56 per share on revenue of $20.37bn, unchanged on the same quarter a year ago, as consumers cut back spending.

After the bell, Tesla is due to publish record revenues on the back of record high deliveries. The street expects the electric car maker to post earnings of $1.04 per share, and a 62% increase in revenue YoY to $22.65bn.

Q3 saw an increase in production at Tesla's plants in Texas and Berlin, and Covid restrictions that impaired production at its Shanghai plant have been lifted.

Apart from revenue, this should also help margins recover after the 500-basis point dip to 27.9% encountered in Q2, although higher material costs could partly pare gains.

IBM is expected to deliver a year-over-year decline in earnings on higher revenues when it reports results for the third quarter. Analysts expect IBM to post earnings of $1.79 per share, and revenue of $13.54bn. Investors will look out for commentary on client spending amid a macroeconomic slowdown.

Also after the bell, Alcoa is expected to post earnings of 19 cents per share, a sharp decline compared to the $2.67 recorded three months ago, or even the $2.05 from Q3 2021. Revenue is expected to fall by about 5% YoY to just over $3.01bn.

Since the beginning of the war in Ukraine aluminium prices have fallen, from over $4,000 early March to $2,081 at the end of September. Besides this, production has risen in China, which is likely to put further pressure on prices. Add to that higher input and energy costs, and Alcoa finds itself in a difficult situation, as far as its profitability is concerned.

Commodities

API inventories show a fall in stocks across the board. Crude oil inventories fell by 1.27 million barrels, as the Department of Energy released 3.6 million barrels from its strategic petroleum reserve, half of what it released the previous week.

Gasoline stocks fell by 2.17 million barrels, and distillate inventories fell by just over one million barrels.