Early Morning Call: USD on the way up again as inflation worries reappear

Equity market overview

Equity markets have turned lower as inflation worries take the upper hand.

Yesterday, European and US stocks edged lower as UK consumer price index (CPI) rose back to double figures and companies like Nestle and Procter & Gamble highlighted the impact of inflation on their earnings reports.

Overnight, APAC stocks fell and indices in Europe struggle to find a direction this morning.

Macro overview

In China, the People's Bank of China (PBoC) kept its key lending rates unchanged for a second straight month at its October fixing. The one-year loan prime rate, the reference for corporate and household loans, was kept at 3.65%; the five-year rate, the reference for mortgages, remained at 4.3%.

Japan posted its 14th straight month of trade deficit, the longest streak since 2015. Japan's imports grew more than 40% for a fifth consecutive month in September to hit ¥2 trillion, the largest value on record. Exports also rose by a softer 28.9%. During the fiscal first half to end-September, Japan accumulated a record trade deficit of ¥11tn.

The Bank of Japan (BoJ) said overnight it would hold emergency bond-buying operations, offering to buy some ¥100 billion, about $667 million, in government debt.

For the past few months, the yen has dropped against the dollar, hit by the widening difference between US and Japanese interest rates. It now trades just below the highly psychological ¥150 level.

In Australia, the unemployment rate remained at 3.5% in September, matching market estimates. Data show a disappointingly small rise in net employment, up 900 in September, short of market forecasts of 25,000 and well down on August's jump of 36,300.

In the US, initial jobless claims are expected at 1.30pm. Economists anticipated 230,000 new claimants. A couple of indicators are also scheduled this afternoon: Philadelphia Fed manufacturing index and Existing home sales.

Corporate overview

On the corporate front, Travis Perkins says it had a resilient third quarter (Q3) with underlying sales growth of 7.4%. The supplier of building materials sees a full-year (FY) operating profit around the middle of the current range of market expectations - £304-340 million.

Dunelm posted a drop in its first quarter (Q1) sales, as consumers struggle with accelerating cost of living. The company reported sales of £357 million, down 8% from the previous year. FY23 guidance remains unchanged despite the challenging macroeconomic environment.

In the US, Tesla posted profits broadly in line with consensus. Earnings came at $1.05 per share, compared to expectations of $10.3. Revenue however missed expectations by about $1bn, coming at $21.45bn.

Even though CEO, Elon Musk talked of excellent demand for the fourth quarter, he warned yesterday that the company was to miss its vehicle delivery targets this year, as logistic challenges persist. Raw material cost inflation impacted the group's profitability. Third quarter automotive gross margin was 27.9%, down from 30.5% a year ago and missing analysts' estimates. Foreign exchange also had a negative impact of $250 million on its earnings.

Alcoa shares tanked in extended hours, after the aluminium producer posted a surprise loss of 33 cents per share. Analysts expected earnings of 19 cents. Revenue also missed expectations at $2.85bn. Just over $3bn was expected. Alcoa was hit by the combination of lower aluminium prices and higher energy costs.

IBM posted better-than expected revenue, which it said was poised to exceed full-year growth targets. Revenue came in at $14.11bn, compared with $13.54 billion expected by analysts. On an adjusted basis, IBM recorded earnings of $1.81 per share, marginally beating estimates of $1.79. Cloud revenue rose 11% to $5.2 billion in the quarter. IBM now expects the company's annual sales to increase more than its previous estimate of mid-single-digit growth at constant currency.

American Airlines is expected to post earnings of 47 cents per share in Q3. Revenue should remain broadly unchanged compared to Q2, at $13.31bn. Last quarter, revenue jumped 80% year-on-year (YoY), driven by a strong recovery in passenger sales.

Also expected today, quarterly earnings from Dow, Philip Morris and AT&T.

Commodities

Oil prices have risen for a second day.

Yesterday, EIA crude oil inventories showed a 1.7 million barrel decline last week. Gasoline stocks fell by 100,000 barrels, while distillate stocks rose, also by 100,000 barrels.

Gold rose modestly this morning, but the downward trend remains. The precious metal is getting closer to the two-and-half year low set last month.