Dollar Rebounds, Yields Up, Stocks Down on US CPI

Dollar rebounds strongly in early US session after stronger than expected consumer inflation reading. 10-year yield jumps sharply and breaks above 3.4% handle DOW futures are down over -300 pts at the time of writing. The case for a 75bps hike by Fed is pretty much sealed. The question is whether markets will bet on more. For now, Aussie and Kiwi are the worst performer for today, but Yen is not too far away.

Technically, USD/JPY will come to spot light with a strong rebound. Firm break through 144.98 temporary top will resume larger up trend. But this time, it might not take other Yen crosses up. Instead, the upcoming session could be dominated by Dollar rally, in particular if risk aversion intensifies.

In Europe at the time of writing, FTSE is down -0.23%. DAX is up 0.01%. CAC is down -0.09%. Germany 10-year yield is up 0.052 at 1.706. Earlier in Asia, Nikkei rose 0.25%. Hong Kong HSI dropped -0.18%. China Shanghai SSE rose 0.05%. Singapore Strait Times rose 0.47%. Japan 10-year JGB yield dropped -0.0059 to 0.245.

US CPI slowed to 8.3% yoy, core CPI rose to 6.3% yoy

US CPI rose 0.1% mom in August, after being flat in July, above expectation of -0.1% mom decline. Core CPI rose 0.6% mom, larger than prior month’s 0.3% mom, and higher than expectation of 0.3% mom. Energy declined -5.0% mom while food index rose 0.8% mom.

For the 12 months ending August, CPI slowed from 8.5% yoy to 8.3% yoy, above expectation of 8.1% yoy. CPI core accelerated from 5.9% yoy to 6.3% yoy, above expectation of 6.0% yoy. Energy rose 23.8% yoy, slowed from 32.9% yoy. Food rose 11.4% yoy, largest 12-month increase since May 1979.

Germany ZEW dropped to -61.9, outlook worsened significantly

Germany ZEW Economist Sentiment dropped further from -55.3 to -61.9 in September, worse than expectation of -60. Current Situation index dropped from -47.6 to -60.5, below expectation of -50.5.

Eurozone ZEW Economic Sentiment dropped from -54.9 to -60.7, below expectation of -58.3. Current Situation index dropped -16.9 pts to -58.9.

“The ZEW Indicator of Economic Sentiment decreased again in September. Together with the more negative assessment of the current situation, the outlook for the next six months has deteriorated further. The prospect of energy shortages in winter has made expectations even more negative for large parts of the German industry. In addition, growth in China is assessed less favourably. The latest statistical figures already show a decline in incoming orders, production, and exports,” comments ZEW President Professor Achim Wambach on current expectations.

UK payrolled employment rose 71k in Aug, unemployment rate down to 3.6% in Jul

UK payrolled employment rose 71k or 0.2% mom in August. Comparing with the same month a year ago, payrolled employees rose 803k to 2.8% yoy. Monthly pay rose 6.5% yoy. Claimant count rose 6.3k, versus expectation of -9.2k decline.

Unemployment rate dropped from 3.8% to 3.6% in the three months to July. Employment rate was estimated at 75.4% while economic inactivity rate was estimated at 21.7%. Average earnings including bonus rose 5.5% 3moy, versus expectation of 5.2%. Average earnings excluding bonus rose 5.2% 3moy, versus expectation of 5.0% 3moy.

Australia NAB business confidence rose to 10, conditions rose to 20

Australia NAB business confidence improved from 8 to 10 in August. Business conditions rose from 19 to 20. Trading conditions rose from 26 to 30. Profitability conditions dropped from 18 to 16. Employment conditions also dropped from 18 to 16.

“The recent strength in business conditions carried into August,” said NAB Group Chief Economist Alan Oster. “Official data for retail sales in July confirmed spending remained robust, as suggested by the previous survey, and today’s release shows little sign that August was much different. Conditions are strong across most industries other than construction, where profitability remains a challenge.”

“Confidence rose again in August, as did other forward indicators in the survey,” said Oster. “Confidence took a hit around June as interest rates first began to rise but it seems that firms’ initial concerns about the impact have eased and a more positive outlook is prevailing, at least for the time being.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0055; (P) 1.0127; (R1) 1.0193; More…

EUR/USD’s break of 1.0031 minor support argues that rebound from 0.9863 has completed at 1.1097 already. Rejection by 55 day EMA and channel resistance retains near term bearishness. Intraday bias is back on the downside for retesting 0.9863 low first. Firm break there will resume larger down trend. On the upside, sustained trading above 55 day EMA (now at 1.0169) raise the chance of larger trend reversal, and target 1.0368 resistance.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound. However, firm break of 1.0368 will confirm medium term bottom at 0.9863 already.

Economic Indicators Update