Early Morning Call: copper hits new lows; USD maintains strength
Copper makes it biggest weekly loss post-Covid on poor China economic data and Rio Tinto warning. USD maintains strength – DXY above 109 for the first time in almost two decades. US banking sector set for more bad news?
Indices outlook
Indices' performance was mixed in the Asia-Pacific region.
The Nikkei outperformed the region, rising for a send day, as the yen continued to weaken against the dollar.
Australia’s ASX 200 fell, affected by China’s gross domestic product (GDP) and factory output data, and Rio Tinto's profit warning.
China's economy contracted sharply in the second quarter (Q2). Gross domestic product fell 2.6% in Q2 from Q1. Economists had expected a 1.5% decline. This translated to 0.4% growth on a year-on-year (YoY) basis, missing forecasts of a 1.0% gain, and a sharp slowdown from the 4.8% recorded in the first quarter.
China industrial output also missed expectations. It grew 3.9% in June from a year earlier, below the 4.1% increase forecast. Retail sales recorded their quickest growth in four months, rising 3.1% from a year ago in June. Markets expected the index to remain flat.
Commodities
China data also impacted the commodities sector.
Copper set a fresh eight-month low and is on track to record its biggest weekly loss since March 2020.
Rio Tinto also weighed on the ASX 200. The miner warned that Covid-19-related labour shortages in Western Australia and rising inflation will impact its underlying earnings in the second half. The company's iron ore shipments rose 4.7% to 79.9 million tonnes (Mt) in the second quarter, narrowly missing estimates, but maintained its guidance for the full year.
US overview
Over in the US, markets await retail sales and industrial production data. Yesterday, the dollar reached new highs after the release in producer prices for June. The index rose by 11.3% YoY, beating economists’ forecast of 10.7%. The US Dollar Basket reached new highs on the news. It has partly retraced yesterday’s rally but remains above 108.
EUR/USD had another brief dip below parity, and gold went as low at $1,698.
Equities
Fevertree announced this morning that it had lowered its annual profit forecast, as the tonic-maker signaled a hit from cost pressures and logistical issues. The company now expects full-year operating profit to be in the range of 37.5 million pounds to £45 million, down from its earlier forecast of between £63 million and £66 million.
Burberry also released a trading statement. Its comparable store sales were up 1% in Q1, affected by China lockdowns. Excluding China, comparable sales rose 16%.
Citigroup Inc (All Sessions) and Wells Fargo & Co (All Sessions) are scheduled to report their quarterly earnings before the opening bell. Yesterday, both JPMorgan Chase & Co (All Sessions) and Morgan Stanley reported lower-than-expected earnings and revenue, the former setting aside over $1 billion to cover future credit losses.
Those dreadful results from JPMorgan were accompanied by the CEO, Jamie Dimon, telling the markets that the Federal Reserve's stress tests were crippling the sector and it was that regulatory process that forced his bank to suspend its stock buybacks. He said that the stress tests were "inconsistent, not transparent and too volatile".
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