Tesla shares are lower overnight following the release of Q3 results. The Nasdaq closed 0.7% lower, and the DAX is set to fall 0.5% on the open as inflation worries and recession fears hurt risk sentiment.
· DAX falls as German PPI remains stubbornly high
· Tesla falls pre-market after mixed results. EPS beat forecasts, but revenue missed
· USD/JPY rises towards 150.00 despite a BoJ intervention in the bond market overnight
Stocks in Europe and on Wall Street finished lower again yesterday as inflation fears returned to haunt the market. UK inflation rose to double digits, hitting a 40-year high of 10.1%. Meanwhile, Eurozone inflation flirted with double digits, coming in at 9.9%, a record high.
Pressure continues to mount on both the BoE and the ECB to act more aggressively to bring inflation, which is five times the target level, lower.
In the US, bond yields and the USD resumed the rally after hawkish comments from Fed speakers. Fed President Neel Kashkari was clear that the US central bank can’t pause interest rate hikes while core inflation continues to rise. The fact that known dove Kashkari is adopting a firmly hawkish stance speaks volumes about where the Fed is right now, with no signs of wanting to slow the pace of hikes.
A 75-basis point hike is priced in for November. Looking ahead to December, expectations of a 75 basis point hike have risen to 77%, up from 7% just a month earlier.
The Nasdaq closed 0.85% lower, and the S&P500 ended the day 0.7% lower. Mixed earnings from Tesla also acted as a drag.
Tesla
The EV maker reported EPS of $1.05, ahead of forecasts of $1.01. However, revenue came up short at $21.45 billion, below the $22 billion forecast. Gross margins also underwhelmed at 27.9%, slightly at 27.9%, below the 28.4% forecast, suggesting that profitability is suffering amid elevated input costs. Tesla trades 6% lower pre-market.
The weak finish on Wall Street sees Europe pointing to a modestly weaker open. Stubbornly high German PPI inflation is doing little to help the market mood.
German PPI
German PPI remained at 45.8% YoY in September, in line with August, while defying expectations of a fall to 44.7%. PPI is considered a lead indicator for CPI, suggesting that consumer price inflation will keep rising. The data comes ahead of next week’s ECB meeting, where a 75 basis point hike is expected. EUR/USD trades +0.1% as USD bulls pause for breath. The DAX trades at 12700 at the time of writing.
Looking ahead
Inflation, interest rate expectations, and the path of rate hikes by the Fed are likely to remain in focus in the US session, with 3 Fed speakers expected to hit the airwaves and US jobless claims are set to be released. Jobless claims are expected to increase to 230k, up from 228k in the previous week.
USD/JPY
USD/JPY will remain very much on the radar as it approaches 150.00, a 32-year high, despite an intervention by the BoJ into the bond market overnight. At the time of writing, the pair is just five pips off this key level which could prompt an intervention by Japan into the FX market to shore up the yen. Japanese authorities intervened at 145.00 at the end of September, the first intervention since 1998.
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