Breakfast Bites - Risk on sentiment as markets await CPI

Rise and shine everyone and happy US CPI Day!

The big news today of course is the release of the CPI data at 8:30am ET. This the last inflation data release before the Fed’s November FOMC meeting and so it’s a big deal. The consensus however, is for a softer print - with both core and headline numbers declining from August. It would seem that risk sentiment is skewed towards the positive such that even a mild, in-line print will likely lift markets.

CPI forecasts from the major banks:

US equity futures are higher this morning after quite the bullish close yesterday. The risk-on sentiment is driven by the “dovish” Fed speak and an expectation of lower CPI levels. Yesterday’s hotter than expected PPI reading was shrugged off and the Fed minutes didn’t bring us any surprises. The decision to hold rates was unanimous. In fact, traders have not adjusted their outlook for the Fed Funds Futures, and after the rally in bond yields having a de-facto tightening effect, the market is content to presume that the Fed is done with hiking.

Looking at yields from yesterday pre-market, we’re actually flat at the short end while the long end continues to decline marginally with the Yield Curve not inverting further to -0.42%. This is interesting considering yesterday’s 10Y Treasury Note auction wasn’t all that great and pushed the yield higher to 4.610%.

WTI has recovered from its lows of yesterday to $84/bbl while Gold has been surging again crossing $1880/oz this morning. Bitcoin and Gold seem to be signalling risk-off while the USD and yields are signalling risk on. Positive sentiment is certainly driving the markets.

Asia and Australia

Asian equities ended higher almost everywhere Thursday. Hong Kong led the region with strong gains in financial and banking stocks, mainland indices saw gains although not as sharp. Seoul and Taipei higher, Australia ended only a few points up. Most of Southeast Asia higher ex Thailand, India flat. Japan saw its fifth consecutive day of gains.
Japan PPI inflation eases more than expected, machinery orders slightly miss. Import prices continue to fall for the fourth straight month. In a speech, board member Noguchi said inflation pressures stemming from import prices due to global inflation finally showing signs of coming to an end, while also acknowledging core inflation running higher than expected as indicated by Outlook Report forecast revisions. He stressed the need for nominal wage growth to clearly exceed 2% on a trend basis in order to dispel Japan's deep-rooted norm of zero price/wage growth.
China has for the first time issued a notice prohibiting domestic brokerages and their overseas units from taking on new mainland clients for offshore trading. This is a step to curb speculation and boost the local equity markets.

Europe, Middle East, Africa

European equity markets higher. Follows broad strength in Asia.
UK monthly activity data showed economy bounced back in August. GDP was up 0.2% MoM versus consensus 0.2% and prior -0.6% drop. The increase was driven mainly by a 0.4% increase in services while manufacturing decline -0.8% and construction decline -0.5%. Even though the headline number has turned positive the risk is skewed towards a weaker 3Q GDP print. The Bank of England recently revised their growth forecast lower from +0.4% to +0.1% and today’s print will like reinforce a pause in hiking for the next meeting. BoE's Dhingra says rate cut may come sooner if growth falls much more than expected
Despite slowing inflation and rising costs, food companies, Suedzucker (Germany) and CHR Hansen (Denmark) are up on increased profits & outlook. They released earnings results today and discussed a positive outlook for the remainder of the year.

The Americas

Headline September PPI up 0.5% m/m, hotter than consensus for 0.3% but below August's 0.7% rise (which was the sharpest rise since June '22). Up 2.2% y/y. Headline driven by a 3.3% monthly rise in energy prices. Core PPI (ex food and energy) up 0.3% m/m, topping prior month's 0.2%, which was also the consensus. Release noted a 13.9% jump in prices for deposit services was a major factor, though there were some declines in airline services and auto retailing.
Delta reported a double beat - Q3 EPS $2.03 vs FactSet $1.95; Revenue of Revenue of $15.5B vs. $14.55B. ****But, as expected they cut the higher end of their outlook yet again, this time based on higher fuel prices and higher-than-expected maintenance costs. They also discussed slower international travel and duller corporate travel.
Domino's Pizza earnings beat but revenue hit by weaker comps (though international results were better). Outlook commentary was cautious, saying global retail sales growth to trend below its medium-term guidance.
Fastenal earnings and margins a touch better. Highlighted sequential net sales growth driven by solid results from its Onsite locations, which more than offset softer end-market demand by manufacturing customers and lower revenues to construction/resellers.
Walgreens Boots revenue better but earnings missed, with FY guidance midpoints below the Street. Domestic pharmacy results strong though management flagged weakness in retail reflecting macro-driven consumer pressure.

Charts of the Day

Bank of England’s Credit Survey show: Demand for UK Mortgages continue to decline, while default rates pick up. This is yet another reason that the BoE may continue to hold rates at the next meeting.