Asian Open: Higher Factory Prices Weigh on Sentiment, China CPI Up Next

Sentiment soured on Wall Street yesterday as strong producer prices in the US exacerbated concerns of higher consumer prices in today’s inflation report.

Charts (3)

Wall Street was lower due to rising factory gate prices

Asian Futures:

  • Australia's ASX 200 futures are up 20 points (0.27%), the cash market is currently estimated to open at 7,454.20
  • Japan's Nikkei 225 futures are down -10 points (-0.03%), the cash market is currently estimated to open at 29,275.46
  • Hong Kong's Hang Seng futures are down -89 points (-0.36%), the cash market is currently estimated to open at 24,724.13
  • China's A50 Index futures are down -20 points (-0.13%), the cash market is currently estimated to open at 15,483.33

 

UK and Europe:

  • UK's FTSE 100 index fell -26.36 points (-0.36%) to close at 7,274.04
  • Europe's Euro STOXX 50 index fell -7.9 points (-0.18%) to close at 4,344.63
  • Germany's DAX index fell -6.05 points (-0.04%) to close at 16,040.47
  • France's CAC 40 index fell -4.21 points (-0.06%) to close at 7,043.27

 

Tuesday US Close:

  • The Dow Jones Industrial fell -112.24 points (-0.31%) to close at 36,319.98
  • The S&P 500 index fell -16.45 points (-0.35%) to close at 4,685.25
  • The Nasdaq 100 index fell -116.092 points (-0.71%) to close at 16,219.94

 

 

Indices:

US producer prices rose in October, which places further emphasis on today’s inflation report and just how transitory it is. Factory prices rose 0.6% in October and rose a further 6.8% y/y, just as it did in September. Prices for energy goods and services provided the baulk of the rice rises as bottlenecks and labour shortages persist. Separately, business sentiment for small business slipped to a 7-moth low.

Wall Street and bourses across Europe were broadly lower, a trend which began in Asia but took hold overnight ahead of today’s highly anticipated inflation data.

The VIX (volatility index) rose 1.02 points to a 1-month high of 18.23, tech stocks were underperformers with the Nasdaq falling around -0.7% and the FANG index falling -1.7%. Biotech stocks fell around -1% whilst the S&P 500 and DJI fell -0.4%.

 

ASX 200 Market Internals:

The ASX 200 fell -0.24% following weak earnings from banks

ASX 200: 7434.2 (-0.24%), 09 November 2021

  • Information Technology (1.07%) was the strongest sector and Financials (-1.02%) was the weakest
  • 8 out of the 11 sectors closed lower
  • 4 out of the 11 sectors outperformed the index
  • 78 (39.00%) stocks advanced, 114 (57.00%) stocks declined
  • 65.5% of stocks closed above their 200-day average
  • 57% of stocks closed above their 50-day average
  • 56% of stocks closed above their 20-day average

 

Outperformers:

  • + 28.5%-Chalice Mining Ltd(CHN.AX)
  • + 7.59%-Lynas Rare Earths Ltd(LYC.AX)
  • + 6.27%-Pointsbet Holdings Ltd(PBH.AX)

 

Underperformers:

  • -4.51%-Inghams Group Ltd(ING.AX)
  • -4.11%-CSR Ltd(CSR.AX)
  • -2.9%-AGL Energy Ltd(AGL.AX)

 

 

Forex:

Several currency pairs exceeded their average daily ranges during risk-off trade

China releases inflation data at 12:30 AEDT today, and it is likely to be the main event of the session. Core inflation is expected to rise to 1.4% y/y from 0.7%, which would be its first rise in five months. Producer prices are expected to rise to a record 12.4% from 10.7% and may be worth noting that the ‘actual’ has beaten record estimates for the past 3-months. Inevitably, producers are going to have to pass on costs to consumers at some point, but the question is by how much and when. And if prices rise in China, it will surely impact the rest of the world and once again bring scrutiny to Western central bank’s claims of ‘transitory’ inflation.

China will also release foreign direct investment, new loans and money supply data at an unspecified time today. However, US inflation data is arguably the main event, as evidenced by Wall Street trading lower on higher producer prices overnight.

Safe-haven currencies JPY and CHF were the strongest overnight as they sucked in safe-haven inflows whilst AUD and NZD were the weakest. USD/JPY fell below 113 for the first time in a month, USD/CHF touched a 5-day low

 

 

Commodities:

Gold appears poised to break higher should we get a strong inflation set from China and the US today, and the yellow metal is close to probing the July and September highs around 1834.

Gold prices are probing key resistance at the September high ahead of China and US inflation data

 

Since the spike down to 1680, gold has broken a bearish trendline and produced two higher lows on the daily chart. Bullish momentum has increased leading into key resistance around 1834 and RSI (14) has broken its prior cycle high ahead of price action, further highlighting the increase of momentum into resistance. A risk to the downside is if inflation data from China and US disappoints, in which case gold may well roll over from current levels. Otherwise, we favour a breakout and move towards 1870.

Oil prices rallied around 3% on expectations for higher demand as the US relaxed travel restrictions. The EIA (Energy Information Administration) also forecast lower gasoline prices which helped brent and WTI rise above $84.

 

 

Up Next (Times in AEDT)

Inflation data from China and US are key events today

 

 

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