Breakfast Bites - The good news on inflation continues

Rise and shine everyone.

The big news this morning continues to be inflation. After yesterday’s better-than-expected inflation data from the US, we received UK Inflation data this morning that also came in better than expected. We’re also set to receive PPI and Retail sales data in the US today. While PPI should ameliorate, given the China’s deflationary situation and yesterday’s CPI data, Retail Sales will be something to keep an eye on.

On the activity front however, we received mixed data with Japan’s GDP growth coming in negative for the quarter and Industrial Production for the EZ dropping further while, China’s retail sales and industrial production came in higher than expected.

US Equity Futures are trading higher even after an almost 2% move yesterday with the SPX crossing 4500. Yields dropped sharply yesterday and are bouncing marginally higher this morning alongside the US Dollar Index, that also took a sharp turn down. Gold, Bitcoin remain higher while Oil is giving up some of it’s gains from yesterday.

Finally, the US Government has averts a shutdown with new laddered spending bill, while Target is up +15% in the pre-market on earnings results.

Asia and Australia

• Asia equities finished higher across the region Wednesday. Hong Kong led with an almost 4% gain, mainland China markets saw more modest positive returns. Australia closed at two-month high, South Korea up almost 2%, Taiwan's tech names led gainers there. Indonesia and Thailand notable gainers in Southeast Asia, India extending morning gains.

• Japan GDP contracted -2.1% annualized in Q3 and follows revised +1.1% growth in the previous quarter. Growth fell -0.5% QoQ. Main driver was a drag from private inventories. Other segments were generally benign. Capex fell for the second straight quarter, posing a marginal drag. Private consumption, residential investment and public demand were little changed. The next leg up for Japanese equities was predicated on business investments and therefore, we’re now turning a little more cautious on the market there.

• PBOC conducted an MLF operation of CNY1.45T in size, notably larger than consensus CNY950B. With CNY850B in expiring funds, the net CNY600B injection was the biggest since December 2016. This expanded on the net CNY289B added last month. MLF rate was unchanged at 2.5% as expected.

• Further positive data from China this morning:

  • Industrial production rose 4.6% YoY in October, slightly ahead of consensus 4.5% and follows 4.5% in the previous month.

  • Retail Sales up 7.6%, better than consensus 7.0%, following 5.5% in September. Marks the strongest growth since May, although some of this was driven by base effects. Housing-related materials saw the only declines.

• Iron ore futures in Singapore touched $130 a ton for the first time since March on an improving demand outlook for steel in China.

Europe, Middle East, Africa

• Europe markets higher led by mining companies on China’s demand outlook after positive industrial production data. UK markets outperforming after inflation data comes in better.

• UK Headline CPI came in at 4.7% YoY (vs. previous 6.7%), Core CPI came in at 5.8% YoY (vs. previous 6.1%). The largest downward contribution came from housing and household services, with annual rate lowest since records began in 1950. Note that base effects having big impact with last October seeing big increase in household energy prices and new Ofgem price cap also down last month. Softer food price inflation also weighing with lowest annual rate since June 2022.

• EU industrial production for September missed expectations, coming in (1.1%) MoM vs (0.9%) expected. Equates to (6.9%) YoY vs (6.3%) expected. The last positive YoY value was recorded in February 2023, with worsening trend ever since.

• The European Commission published its latest economic forecasts. Cut its Eurozone GDP projections in 2023 by 0.2% to 0.6%, trimmed its 2024 GDP forecast by 0.1% to 1.2% and sees 2025 growth at 1.6%. It highlighted high inflation, ECB interest rates and weaker external demand tool heavier toll on Eurozone growth than expected.

The Americas

• US Shutdown Averted: The House yesterday passed a laddered government funding bill pushed by Speaker Johnson to keep government spending at current levels until January and February

• Mexico Oct Nominal Wages YoY: 5.8% v 5.1% prior. Just when the Banxico has started talking about rate cuts, we see wages start to rise contributing to core inflation. It remains to be seen whether this move will be considered in future discussion. They have been very careful not to cut too early and perhaps rightfully so. Inflation has remained well under control in Mexico.

• Target up big this morning after a margin-driven Q3 earnings beat and largely in line Q4 guidance (there had been some fear about another 2023 guidance cut). Advanced Auto Parts weak after it missed and slashed FY guidance, though it also announced a new cost-savings program.

Chart of the Day:

The Hang Seng Index: Better than expected economic data, stimulus measures, positive earnings and President Xi’s visit to the US to strengthen diplomatic ties all seem to be helping the Hang Seng Index sustain a temporary bounce here. Barring any negative news the futures could rally to 18,400 and if it can push through that level, we could see a continuation higher.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)