Early Morning Call: UK CPI hits new 40-year high

Equity market overview

US equity markets ended the session higher yesterday, boosted by reassuring earnings in the retail sector. The US dollar fell to a new three-month low at the publication of US producer price index (PPI). Factory gate price rose 8% year-on-year (YoY), lower than the 8.3% forecast, and the slowest pace since June 2021.

Core PPI was flat month-on-month (MoM), the lowest since November 2020. This latest data reinforced hopes of a Federal Reserve (Fed) slowdown. If the battle against inflation is not over, some Fed policymakers are now considering raising interest rates at a slower pace.

However, the latest central banker to express his opinion was Atlanta Federal Reserve president, Raphael Bostic, who sees little evidence that the US central bank's aggressive monetary policy tightening is slowing inflation. Bostic did not indicate if he favoured slowing the pace of future rate increases.

On Monday, Fed vice chair, Lael Brainard echoed comments by Fed governor, Christopher Waller that interest rates need to keep rising to battle inflation, although potentially at a slower pace.

Overnight however, APAC indices didn’t relay the US performance, as concerns grew about an escalation of the war in Ukraine. In China, new home prices saw their biggest fall in seven years. Average new home prices in China's 70 major cities dropped by 1.6% YoY in October. It was the sixth straight month of decreases in new home prices, and the fastest fall since August 2015.

In Europe, indices opened the session lower. In the UK, inflation has hit a new 40-year high. These are October numbers and will be a fresh blow to families battling the rising cost of living. Food and non-alcoholic beverage prices rose by 16.4% in the 12 months to October 2022, up from 14.6% in September 2022. Energy bills rose in October despite the government's decision to cap the annual amount paid by the average household at £2,500. That's the highest since September 1977 according to this data today.

The rise was anticipated by the Bank of England (BoE) in its latest quarterly monetary policy report. Threadneedle Street said inflation would remain high and only fall back towards 10% in the first three months of 2023.

Macroeconomic indicators

In the US, traders await a few macroeconomic indicators. At 1.30pm, retail sales are expected to rise by 1% in October MoM. Later at 2.15pm, industrial production is forecast to rise by 0.2% in October MOM. And at 3pm, business inventories are expected to increase by 0.5% in September MoM.

Corporate calendar

On the corporate front, British Land reported a fall in valuations of its assets and slid into a half-year (H1) loss, as aggressive interest rate hikes to tackle inflation and deepening recession worries are weighing on the sector’s tentative recovery.

The group posted a loss after tax of £34 million. Net Tangible Assets, a key measure that reflects the value of its buildings, fell 4.4%.

On Tuesday, its bigger peer Landsec said it would slow the pace of its re-investment after reporting a first-half loss.

Premier Foods said adjusted profit before tax is up 11.9% and maintained its margins in line with prior year.

Sage Group's revenue rose by 5% to £1.95 billion, EBITDA wasup 3% to £468mn, with EBITDA margins down 20 basis points to 24%.

NVIDIA is set to post earnings per share (EPS) of 70 cents on Wednesday after the closing bell. Revenue is forecast at $5.8bn. Last week NVIDIA was among the best performing on the US market. On Monday, the market welcomed the announcement that the group is now offering a new advanced chip in China that meets recent export control rules. And on Thursday, NVIDIA shares rose in excess if 15% after the release of lower-than-expected US CPI data.

Other US earnings include Cisco. Analysts anticipate earnings of 84 cents per share, on revenue of $13.29bn.

Target is expected to report earnings of $2.16 per share, on revenue of $26.38bn. Yesterday was a good day for the retail sector after reports from Walmart and Home Depot.

Walmart shares rose by 6% after the group raised its outlook and announced a $20bn share buyback plan, an announcement that supported the whole sector. Target ended the session up 3.3%.