Early Morning Call: GBP rises as UK inflation surprisingly hotter than anticipated

Equity market overview

APAC equity markets rose overnight, following the lead of US indices.

Yesterday, US stocks were lifted by Janet Yellen's comments. The US Treasury Secretary said that the government was ready to provide further guarantees of deposits for vulnerable banks.

Tonight at 6pm, the Federal Open Market Committee (FOMC) will draw a conclusion to its two-day meeting by announcing its decision on rates. Fed funds futures show a 84.1% chance of a 25-basis point (bp) hike, that will take the target rate to 4.50%-4.75%, nine percentage points higher than yesterday.

If there is a clear majority, the arguments on both sides remain. On the 'no move' camp, Goldman Sachs argues the banking stress will cause a tightening in lending, adding that "the historical record suggests that the FOMC tends to avoid tightening monetary policy in times of financial stress and prefers to wait until the extent of the problem becomes clear, unless it is confident that other policy tools will successfully contain financial stability risks."

JPMorgan stands with the majority and expects a 25-basis point rise because postponing a move until May would threaten the credibility of the Federal Reserve (Fed) in its fight against inflation.

In the UK, headline annual CPI came in at 10.4% in February, beating estimates of a drop from 10.1% in January to 9.9%. Likewise, core annual inflation rose more than expected, by 6.2% in February. Will this latest inflation data weigh on the Bank of England (BoE) decision? Tomorrow, the market expects the BoE to raise its rates for an 11th consecutive time, by 25-basis point to 4.25%.

Corporate calendar

On the corporate front, Fevertree Drinks' adjusted EBITDA fell 36.8% to £39.7 million. The group says gross margins were impacted by inflationary pressures, flagging that the impact elevated energy costs have on glass bottle prices will be material this year.

Vistry says conditions are improving in the housing sector, as the UK homebuilder reported a 21% rise in annual profit to beat market expectations.

In the US, Nike rose in extended trading as the group beat Wall Street's expectations for its fiscal third quarter (Q3) earnings and revenue. Earnings per share (EPS) came in at 79 cents, compared to 55 cents expected, driving a net income of $1.2 billion, compared with $1.4bn, or 87 cents per share, a year earlier. Revenue was also better than forecast, at $12.39bn.

Nike’s margins have continued to shrink. Like other retailers, it has been in the process of offloading a glut of inventory brought on by supply chain disruptions. While Nike CEO, John Donahoe, told investors last quarter he believes the company is past its inventory peak, gross margins were expected to take a hit during the holiday quarter as the company continued liquidation efforts and promotions.

Commodities

Oil prices were showing small declines this morning after rising 2% on Tuesday.

The API revealed that crude oil stocks increased by 3.26 million barrels last week, taking the total gains to more than 59 million barrels so far this year. SPR inventory was kept unchanged for a tenth straight week.

Gasoline inventories fell by 1.09 million barrels, while distillates stocks fell by 1.84 million barrels.