Global markets rallied on Friday after Chinese inflation and producer prices were lower than expected, adding to hopes that inflationary pressures globally were easing.
The S&P 500 rose +1.5%, all sectors were hgiher with communications and energy making the largest gains of +2.53% and +2.38% respectively and 90% of stocks closed higher. The DOW was up +1.2% while the Nasdaq gained +2.1%. Analysts at Oanda commented on the recent rally, ”China’s inflation numbers were promising and that is giving hope that central banks won’t have to be as aggressive with tightening over the next few months”. Data on Friday showed inflation eased to +2.5% over the year to August compared to estimates of a modest gain to +2.8% while producer prices declined to +2.3% from +4.2% previously while economists expected a reading of +3.2%. Tesla’s share price gained +3.6% to a price of $299.68, after announcing plans to set up a lithium battery factory off the Gulf of Mexico to secure its supply chain. In economic news, the results of the consumer credit report showed a decline in consumer lending by 39%, well below forecasts.
Investors will be focused on the release of the US CPI report and the inflation report expected to be released on Tuesday expected to show headline inflation slowed to +8% from +8.5% over the 12 months while core prices are expected to rise to +6.1% from +5.9% previously. Analysts at Oxford Economics commented on the impact of the report on interest rates, stating, “Recent economic data showing signs of looser labour market conditions and some easing of price pressures are surely welcomed by the Fed as it continues to wage its campaign against inflation”. Also in focus throughout the week is U.S. producer prices expected to show a moderation over the 12 months to August as well as retail sales which are expected to be flat over the month. The yield on the US 10-year bond slipped 1 basis point to 3.32% while the VIX declined by -3.47% to 22.79.
European markets closed higher on Friday boosted by banking on expectations of a further hike in the monetary policy as well as China’s efforts to revive its troubled property sector helping boost materials. The Euro Stoxx 600 up by +1.5%, the DAX +1.4%, the CAC +1.4% and the FTSE +1.2%. The release of economic data will be in the limelight this week, with the ZEW Economic sentiment report, the German Inflation rate and UK Unemployment rate all expected to be released on Tuesday, and Eurozone final reading of inflation for August on Friday.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open higher on Monday, with ASX futures up +1.05% or 72 points to 6856. The index climbed +0.66% on Friday boosted by materials and energy rising by +3.3% and 1% respectively. Mineral Resources rose +13.6% on talks of spinning off its lithium business while Pilbara Minerals gained 5.9%, along with BHP +3.1% and Fortescue Metals 6.1%. In energy, Whitehaven Coal and Yancoal were up by more than 3% each. In healthcare, Ramsay Healthcare saw its share price decline by -1.3% after takeover talks with IHH Healthcare for its Ramsay Sime Darby fell through. The yield on the 10-year bond was little changed at 3.56% and the Australian dollar gained strength against the greenback rising +1.33% to 0.6841. Ahead in economic data for the week, the Westpac Consumer Confidence index for September is release on Tuesday followed by the NAB Business conditions survey. All eyes are on Thursday’s employment rate expected to show +35k jobs were added in August with the unemployment rate expected to be unchanged at +3.4%.
In commodities, oil prices rallied with Brent crude rising +3.8% to $92.49. The price of base metals rose after China announced more support to COVID-19-stricken territories with SFX Iron ore gaining +3.2% to US$103.25, LME Copper added +0.59%, along with nickel +5.7. The price of Bitcoin surged 9.8% to $21,273 with spot gold also +0.5% higher to $1716.24 along with spot silver by 1.74% to $18.86
Economic Calendar:
• UK GDP Report (3 months to July) 16:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
