US inflation & China quarantine reductions boost stocks – Daily Market Brief, November 11, 2022

The Nasdaq and the Hang Seng soar 7% after US inflation cools by more than expected and China eases some COVID measures.

·         China eases COVID measures, Hang Seng jumps 7% & oil rises 2.5%

·         German inflation rose to 11.6% in October; the DAX trades at a 5-month high

·         UK Q3 GDP shrinks -0.2%, less than forecast; GBP/USD and FTSE rise

That was the data that the markets had been waiting for. The stock markets both in the US and Europe charged higher following the US inflation print, with the Nasdaq booking gains of 7.35%, the DAX closed up 3.5%, over 14000, at a 5-month high. Meanwhile, the USD index dropped 2.2% and continues to sell off today.

US CPI dropped to 7.7% YoY in October, down from 8.2% in September and 9.1% in August. Expectations had been for COI to tick lower to 8%. Meanwhile, core inflation fell from September’s 6.6% 40-year high to 6.3%, cooler than the 6.5% forecast.

The cooler-than-expected inflation has fueled bets that the Federal Reserve will adopt a less aggressive stance toward hiking interest rates going forwards. The market is now pricing in an 80.6% probability of a 50-basis point hike in December, up from 52% just prior to the inflation data print. This was then supported by a chorus of Fed speakers who suggested that a slower pace of hikes could be appropriate.

USD/JPY fell to a six-week low of 140.20 following the data, as the Fed – BoJ divergence narrowed slightly.

China COVID

The upbeat mood continued across the Asian session, which was also boosted by state media reports that China is easing some COVID restrictions. These include reducing the quarantine period for international travellers by two days. The Hang Seng soared 7% to a monthly high and oil prices have jumped 2.5% ahead of the European open.

German inflation

While inflation is slowing in the US, the trend doesn’t appear to be kicking in elsewhere. German inflation confirmed the record high of 11.6% YoY in October as energy prices spiralled. While the German economy has avoided a recession so far, it is widely expected to fall into contraction in the current quarter, weighed down by elevated inflation, high energy prices, and weak consumer confidence.

The DAX is set to open 0.7% higher today at a fresh 5-month high.

EUR/USD rallied over 1.7% yesterday to and is adding to those gains on Friday, hitting 1.0235, a two-month high.

The European Commission is set to release economic growth forecasts, and several ECB officials are also due to speak. Investors will be listening for comments on inflation, growth, and where the ECB sees interest rates going in the coming meetings.

UK GDP

The UK economy contracted by less than expected in the July to September period. UK Q4 GDP fell -0.2% QoQ, after rising 0.2% in Q2. The UK economy held up better than feared, with consensus estimates pointing to a -0.5% contraction. However, this is expected to be the start of a long recession, which is expected to last across 2023.

Consumer spending and investment both fell during the quarter. The outlook for consumers remains bleak, with inflation still elevated and the BoE raising interest rates, adding to the squeeze on household incomes.

GBP/USD has risen to 1.17, a monthly high. The FTSE also trades at a monthly high just shy of 7400.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters

Original article provided by Trading Writers

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