US CPI Expected To Reach Highest Level Since 1990

Okay, very good morning to you. It is Wednesday, the 10th of November. Hope you're doing well. And gonna kick things off by talking about the heat map for the S&P 500 and how Wall Street closed last night, because we did have a lower finish. The S&P and the Dow Jones Industrial Average both finishing down about a third of 1%, the NASDAQ down 0.6 of 1%. So looking at the heat map here, importantly then, the decline in the S&P was the first time it's fallen in 9 sessions, and that ends that multi-year kind of consecutive incline that we had been seeing. The decline was led by financials. You can see here on the heat map, it breaks it down by top-level sectors, and finance here was under the most pressure. It came after US 10-year yields slumped to its lowest level in several weeks. On the flip side, in the green, you can see— and the way generally a heat map works is the bigger the square, the bigger the market weighted cap is. Categorized in those sectors. And Amazon, a really nice green spot yesterday. They were up around 2.5%, um, and that came after PayPal announced that users of its payments app, uh, Venmo, will be able to buy products on Amazon with the app starting from next year, being received very positively for the stock price. On the other side, if we go down to the bottom here, let me just bump this up a little bit so you can see it right down here in the bottom. You've got Tesla, of course, and Tesla finished down yesterday about 12%. They're one of the largest decliners, and hence the reason subsequently why the Nasdaq, by a ratio of 2 to 1, underperformed those other major US indices. And the headline, of course, always going to be made super sensational, and Tesla erases then $199 billion in its worst two-day rout in 14 months. And you know, what goes up must come down. But I think a lot of this needs to be taken in context because just check out the Tesla chart. I mean, their shares still up a good part of 45% on the year and they're still holding a $1 trillion market cap. It's just the fact that they've come off $200 billion given the meteoric rise that we've seen of nearly 40% alone in just the last fortnight. So as much as the, the papers will be talking a lot about this, and obviously it comes in the context of the poll that Musk put out the weekend, which we talked about, his brother as well offloading shares and other things as well in the mix, but more so the behavioral aspect of just coming off after that wicked acceleration that we had had in their stock price. So yeah, we'll keep an eye on that. And certainly from a heat map perspective, that was a bit of an eyesore on the red side of things. Amazon the outperformer yesterday. Um, before I move on though, just wanted to mention that we've got our latest, um, free market simulation happening today, um, later on this evening, uh, London time. So all you need to do is just go to AmplifyMe.com and just click Book Free Simulation. Or alternatively, if you want to access our our content community hub that you can see here. Again, absolutely free to get the latest market analysis, careers advice and help, and insights from industry leaders. Then all you need to do is just sign up for free here. Again, this is very much focused on students looking to find their, their path in finance, and for sure we'd love to have you part of the community as well. Just another shout that if you scroll down to the very bottom, you You can also access then a subscription to our free Daily Market Maker newsletter, which I write at the end of every European trading day, just kind of deconstructing a 3-minute breakdown of major market topic. And it did come yesterday after I had a really great talk with the former global head of research at Deutsche Nomura, Bilal Hafeez, about Ethereum specifically yesterday. And in the context of some of those crypto moves, it was a really interesting chat. So you can check that out on the, on the YouTube channel. But back to the news and what have we got? So let's, let's pivot over to China and going to talk about inflation as per the consensus. Well, the actual focus of the market will absolutely be on inflation today, namely because we've got the US CPI where the headline year-on-year reading is expected to be the highest since 1990. We'll get to that in a moment because inflation is a global issue at the moment, and China's inflation risks are building as producers pass on higher costs is the headline. Um, one of the things here is vegetable prices now jump after weather-related supply disruptions. And what, what does this look like? This is looking at a bit of a breakdown here, and you can see 3 different things. The black line is producer prices in China, um, the The pink line is CPI, consumer prices, and the blue reading corn. As you can see, there has always been, uh, in the aftermath of the pandemic, a growing divergence between producer prices and CPI. So that's not particularly new. PPI though is now at its highest or rising its fastest pace in 26 years. CPI, this is the one thing that people are looking at, is, as you can see, it has seen a slight uptick. So still massive gulf between the two, but CPI rising now its fastest pace since Sep of 2020. Um, producer prices in China have been rapidly rising, as you can see, and for several months, first due to global commodity price rallies that we've been seeing, and then output curbs caused by a power crunch that was very much a domestic issue. Consumer inflation is also starting to pick up, as I mentioned, vegetable prices in particular weather-related supply problems are pushing up food prices. And as these producer prices continue, the manufacturing costs to go up, some of them are now passing on higher costs to retailers and subsequently consumer prices are going higher. So definitely keeping an eye on this. And this is that balance as well between the general perception of whether or not, just given some of the economic slowdown that we're seeing, the COVID complications that China continues to confront, as they lock down large-scale provinces given their zero tolerance policies, whether or not the central bank will have to act in kind to kind of continue to support the economy. Now, whether that comes in RRR cuts, the reserve requirement ratio, or as it has been of late, further large-scale liquidity injections, because one thing is, as we go into Q4 and the beginning of the year, there's also Chinese New Year as well. Typically a season where you get a lot of front-loading of demand, and whether or not that starts to also filter through into price pressures are going to have to be watched. Sticking with the, the area and talking about China and US relations, as you can see here, Biden and Xi all looking very smiley and happy at this point in time, but actually some more kind of positive conciliatory tone to some of the latest news as a virtual meeting apparently is being planned between the two leaders, and that could be held as soon as next week, according to people briefed on the matter. So not official, but that generally means that that probably is the case. Um, in the most recent letter, Xi yesterday, um, in, in kind of sending to the US negotiators, had said that China is ready to work with the US to manage differences. So, yeah, despite, you know, a few days ago they were kind of in the desert in China mapping out US warships as to do military exercises. We're now also now saying, yeah, we're willing to work out our differences. So this is just the art of negotiation, right? You just kind of flex your muscles, particularly given the large-scale government meetings that are happening throughout the week at the moment for the Communist Party. And so that's not unusual to be showing those sort of signs and then going into these more high-level negotiations. A few, a few individual stock stories I thought I'd just mention. A lot of these are kind of trending names rather than in large market cap from a more index-weighted perspective. But 3 nonetheless that I thought were quite meaningful. One was Coinbase. Coinbase shares were down the best part of 15% after market last night. The cryptocurrency exchange reported really disappointing revenue for the third quarter and importantly shrinking number of active users, so those shares were heavily lower after market. DoorDash, this was out yesterday talking about buying Finnish food delivery startup Walt Enterprises for about $8 billion. More consolidation happening in the food delivery market as they all try to keep pace in, in the competitive area given what we've had with the pandemic. DoorDash shares actually were up 24% in extended trading in New York after news of the deal, but also as well their third quarter results exceeded expectations. And then the other one is, um, Rivian. They are the electric vehicle maker's price, its initial public offering at $78 a share, and that is significantly above market expectations. And that sets the stage for one of the largest US stock market debuts, in fact, of the past decade. Um, so yeah, definitely a, a big individual stock story there as well to be aware of. Sticking with equities, the other thing is just going to jump over to the UK. Brexit aside, one of the things here that came out from yesterday was JP Morgan analysts, and they've made quite a meaningful shift because essentially what they've done is turned bullish on UK stocks for the first time since essentially the Brexit vote, which was obviously the summer of 2016. Seen. They've had a long-standing kind of cautious call on the UK since that point in time, but their aggregated data shows that the UK has opened at a record discount versus other regions, both on a price-to-earnings and a price-to-book basis. I have tweeted the full article from the AmplifyMe Twitter account if you want to check out the full article, but I just thought it was quite interesting because this is the first change in obviously multiple years as we just mentioned. All right, calendar for today. We've already had the Chinese data. The UK European morning is super quiet. The main focal point of course is US CPI coming out at 1:30 alongside initial jobless claims. Now US CPI obviously is going to grab a lot of headline attention because the year-on-year is expected to go up to 5.8%, and that would mark then an acceleration from the previous reading of 5.4% and also the highest reading since 1990. Um, so the press are going to have a field day with that, uh, later on this afternoon. Core CPI is expected to rise, um, a slightly more modest pace of 4.3% on an annual basis, up from 4% in the September reading. Economists, policymakers, everyone's going to be closely scrutinizing this, of course, for further signs of inflationary pressures perhaps broadening and looking for evidence of broadening beyond sectors most sensitive to pandemic-related disruptions. So one word of advice, and I'll definitely make sure that I'm sharing some information on Twitter and so on at the time at 1:30, is look at the underlying report. So when you go on to the actual— well, let's just do that as an exercise together now. So just jump on Google US CPI, and then you want to get the Bureau of Labor Statistics. So the actual, you know, the, the people who construct the data point. And when the, when the actual data comes out, you can go on here. It will— you won't need to look far because it will be the main headline piece that they'll actually have on their homepage. So you wouldn't even need to go on the CPI section. And then actually, so let's look at the last report. Go into the report, scroll down, and this is the table that you really need to look at. And it's looking at the line-by-line item of where are these inflationary pressures coming from, and therefore trying to identify whether or not we're seeing a broadening beyond sectors most related to the pandemic disruptions. And so things like used car and trucks, for example, which was that big solely transitory factor, um, X-ing that out, what are some of the other underlying areas looking like at that point in time? And so that's, that's what I'll be trying to help you guys with later on. But something I'd suggest that you be mindful of if you're looking to trade that event later on today. Um, one of the things here then is what's the overall market reaction likely to be to CPI? Well, one thing I would say is that I'm just referring to my notes here. The Fed acknowledged more directly, of course, last week when we had the Fed meeting that the risk that inflation will continue rising, and but highlighted the severe supply chain disruptions that are fueling today's price pressures. Now, this was echoed by Fed President Mary Daly, who was a voter on the FOMC last night, and she said she expected eye-popping inflation to subside next year as pandemic-related supply chain snarls abate. And so I think she's right. That comment that she said echoes what the Fed said last week. And you remember, one of the— not surprises, but one of the things that they did stick to was their party line that yes, inflation is going to move higher, but they still foresee it as transitory. And so as much as today's number is going to be shock and awe and how high it is from a historical perspective, the highest in fact in 21 years, excuse me, 31 years. The actual market impact to that, I'm not sure how large that would be given the fact that the market's been on advance notice about this for some time. And we know what the Fed's stance is, is that even if it's high, it's not going to be an immediate kind of responsive reaction to what they're going to do. They've already set out their stall now. So something to bear in mind. Other things for today, you have got the oil inventory data coming out later. Of course, we had the APIs last night. We saw a drawdown, surprise against consensus estimate of 2.5 million. Analysts were looking for a build of 1.6 million. Gasoline, a draw of half a million. Distillate, build of the opposite. We also have on the calendar today, from a speaker perspective, it's pretty quiet. However, the EU's Brexit negotiator uh, Šefčovič will brief European ambassadors today on the status of negotiations with London. Comes in the context, of course, of the UK wanting to renegotiate the Northern Ireland Protocol and the EU, particularly led from the Irish contingency, talking about the potential of retaliatory measures if the UK were to inaction Article 16. So what's the latest there? And then from a fixed income perspective, we've got German auction, uh, 20-year bond and 10-year TIPS announcement out of the US this afternoon with $25 billion 30-year bond auction at 6 PM. European earnings of note, you do have some larger German firms, E.ON specifically, but Allianz. You've also got Adidas and Crédit Agricole France reporting today. But that is it, so I'm going to leave it there, let you guys get on with the day. Hopefully that was useful, and I will see you time tomorrow. All right, take care.