Early Morning Call: USD/JPY tests 24-year high ahead of US CPI data

Equity market overview

APAC equity markets mostly fell overnight, following US indices, as investors weighed the risks of a global recession.

The Federal Open Market Committee (FOMC) minutes released last night, from the Fed's September meeting, show that the bank’s officials have been surprised by the pace of inflation and indicated that they expect higher interest rates to remain in place until prices come down. "Participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee's legislative mandate to promote maximum employment and price stability."

In the discussions, policymakers noted that inflation is especially hurting lower-income Americans.

Equity markets in Europe opened in negative territory this morning, after edging lower yesterday. The FTSE 100 was the worst performer in the region, as the Bank of England (BoE) insisted its emergency bond market support will expire on Friday.

Forex

The currency market is little changed this morning. Traders await 1.30pm UK, when US consumer price index (CPI) is expected to rise by 8.1% in September year-on-year (YoY) after 8.3% in August. The core CPI increase is expected to accelerate to 6.5%, after 6.3% in August, matching the peak recorded in March 2022, a then 40-year high.

Should inflation data rise more than expected like it did last month, it could give the dollar a leg up, and weigh further on equity markets.

Also at 1.30pm initial jobless claims are expected. Economists anticipate 225,000 new claimants.

The yen, meanwhile, remains near a 24-year high against the dollar. Overnight, Japanese Finance Minister, Shunichi Suzuki, said the government will take decisive action in the currency market if speculative moves were seen in the yen.

Earnings

Elsewhere, easyJet published a trading update this morning. It expects EBI to break even in FY2022, and a loss before tax between £170 million and £190m.

In the US, Walgreens Boots Alliance reports its fourth quarter (Q4) earnings before market open. Earnings per share (EPS) should come at 77 cents, and revenue just above $32 billion. Focus will be on next year's profit forecast, and investors await an update on the group's investment in healthcare.

Delta Air Lines is expected to post its highest quarterly profit since the start of the pandemic. Analysts expect earnings of $1.55 per share on revenue of $12.91bn.

Commodities

On the commodity market, oil prices edged lower yesterday afternoon. API inventories showed a large increase in crude oil stocks of seven million barrels last week, helped by the release of 7.7 million barrels from the Strategic Petroleum Reserves. Gasoline stocks rose by two million barrels, while distillate inventories fell by 4.5 million barrels.

NY orange Juice is heading back towards the recently reached six-year high. Florida orange production was already expected to plummet which explains the steady rise since mid-September. And that was before Hurricane Ian. The latest estimates say that production has been hurt further by the hurricane, down to levels not seen since the 1940's. NY orange juice rose by more than 5% yesterday.