European markets fall after a weak Asian session and more data from the UK showing that Europe is sliding (even) deeper into stagflation. U.S. equity markets show muted moves and slide slightly lower as sentiment in global markets deteriorated further and a key inflation report (U.S. CPI – 12:30 UTC+0) is due, which some investors fear will add to concerns about stubborn inflation in the U.S., underpinning the case for high interest rates for longer.
In the U.K., GBP fell as much as 0.4% against the USD, returning to near 2023 lows, and data showed the U.K. economy contracted at its fastest pace in seven months in July as strikes and wet weather hit economic activity harder than expected. The rapid decline in economic activity and the contracting economy put the Bank of England in a difficult position given the high inflation in the UK, especially with record wage inflation and rising energy prices.
Investors are also concerned that the ECB will provide a rather hawkish outlook tomorrow. The ECB is likely to keep rates on hold tomorrow, but the main focus will be on the rate outlook and the press conference.
Today, however, the main focus is on the CPI data. Investors are already expecting inflation to have re-accelerated to 0.6% month-on-month from 0.2% in July and to 3.6% year-on-year from 3.2% in July. There is a high risk that core inflation will be hotter than expected, as investors continue to expect disinflation with core inflation falling quite rapidly to 4.3% y/y (from 4.7% in July). A high inflation rate would push the USD back to a 6-month high and create headwinds on stocks, especially for growth stocks. The tech sector is already under pressure as Apple declined after the iPhone event where the inventor of the iPhone disappointed.
👉 More focus will be on (and more important is) core inflation – although the initial reaction will happen mostly to headline inflation.
⚠️ We expect U.S. CPI to reinforce the picture of stubborn inflation in the United States. There could be a surprise in the core inflation data. Overall, however, the market already believes that inflation accelerated in August – in part due to rapidly rising energy prices. Core inflation m/m of 0.3% or annual inflation of 4.4% or more would worsen risk sentiment. The hotter the report – the worse for equities and the more the USD would rise (due to rising expectation that the Fed will further delay rate cuts).
👁 ROB'S MARKET OVERVIEW:
September 13, 2023
⚠️ This is in case US CPI comes indeed “hot” / potentially slightly hotter than expected.
🇺🇸 US Markets ↕️/↘️
Cyclical Stocks ↕️/↘️
Tech/Growth Stocks ↕️/↘️
Financial Stocks ↕️/↘️
Defensive Stocks ↕️/↗️
Energy Stocks ➡️/↗️
Materials Stocks ↕️/↘️
💱 Forex (fully depending on today's CPI data)
USD ↕️/↗️ (USD to move back to 6-month high if CPI data generally “hot”)
GBP ↘️ (under pressure from sharply deteriorating UK economy)
AUD ↕️/↘️ (would fall sharply if US CPI comes in hot / otherwise can rebound)
⚒ Commodity Markets ↕️ (commodity prices to fall if US CPI comes in “hot”)
Oil prices ↗️/↕️ (would see headwinds when US CPI comes in hot)
Natural Gas prices ↕️
Metal prices ↕️/↘️
Precious Metal prices ↕️/↘️ (stronger USD would weigh heavily on gold / “cold” CPI report would result in gold rising quickly)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)