Early Morning Call: UK recession risk; gold climbs; Oracle earnings

APAC indices post heavy losses

Unsurprisingly, APAC indices posted heavy losses overnight, matching Friday’s US and European performances.

US consumer price index (CPI) rose to 40-year highs and Michigan consumer confidence plunged to an all-time low which also strengthened the dollar against all major currencies and pushed up gold to a one-month high.

On Friday, the Nasdaq 100 was the worst performer of the US indices, falling by nearly 4%. Likewise, losses in the Asia-Pacific region were led by tech stocks, sending most indices down around 3%. Note that Australia markets are closed for a holiday.

UK outlook

In the UK, the latest data shows that the economy shrank 0.3% in April month-on-month (MoM), missing forecasts of a 0.1% expansion.

This weekend the Confederation of British Industry (CBI) warned that the UK is facing stagnation and recession risk, and downgraded its growth outlook to 3.7% for this year, from 5.1% previously, and just 1% in 2023, from 3%.

Currency markets

Central bank decisions will punctuate the currency market this week.

The Federal Reserve (Fed) takes centre stage on Wednesday, followed by the Bank of England (BoE) on Thursday and the Bank of Japan (BoJ) on Friday.

If there is little doubt regarding the Fed and BoJ announcements, markets will be particularly attentive to Andrew Bailey’s comments. Even though the BoE was one of the first central banks to start hiking rates, sterling could endure the same fate as the euro last week, when the European Central Bank (ECB) president, Christine Lagarde’s messaged was perceived as a lack of commitment.

Stocks and earnings

Tesla proposed a three-to-one stock split after the close of US markets on Friday, which will be put to vote on the 4th of August. Meanwhile Larry Ellison, CEO and founder of Oracle and key supporter of Elon Musk, has decided not to stand for re-election to Tesla's board when his term ends.

Also watch out for Oracle earnings tonight. Investors will be particularly interested in the group’s revenue and guidance.

Revenue growth has been slowing in the last few quarters, but thanks to the sustained demand for the company's cloud products, Oracle has managed to keep its top line increasing.

Other divisions of the group have been directly impacted by the economic uncertainty as a result of Covid, and the subsequent supply chains issues.

Commodities

On the commodity markets, traders will keep an eye on aluminium which set a new 2022 low on Friday and is approaching an important area of support.

Also down is lumber, a victim of higher interest rates and a drop in consumer confidence. The lumber price broke nine-month support on Friday, and there is nothing in sight that would suggest a change in trend.