Thursday: 15th February 2018 - US markets rise in face of higher than expected inflation data

OPENING CALL:  Postive open for Australian Markets as US shrugs off higher than expected inflation data.

The Australian share market looks set to open sharply higher after Wall Street’s main indexes took little notice of stronger-than-expected inflation data and rose more than one per cent.
At 0700 AEDT on Thursday, the share price futures index was up 46 points, or 0.79 per
cent per cent, at 58

Overnight Summary

Market Quotes by TradingView

Each Market In Focus

Australian Market
After a solid rebound yesterday, Australia stocks fell anew today amid a pullback in
miner stocks and weakness in many consumer companies. But the biggest factor was the
stock-price adjustment from Commonwealth Bank trading ex-dividend. That helped result in
the No. 1 lender falling 3%, good for 13 points in the S&P/ASX 200. It fell 14.7 points,
or 0.25%, to 5841.2. But it wasn’t all back for Aussie stocks, with Myer ticking up 1.9%
after the embattled retailer said its CEO was stepping down. And amid a flurry of
earnings reports, Insurance Australia gained 3.2% and CSL jumped 5.1%.
US Markets
U.S. stocks climbed for a fourth consecutive session Wednesday, stabilizing despite
further signs of an anticipated boost in inflation and at least temporarily easing fears
of a prolonged market downturn.
  Consumer prices increased more than expected in January, another data point showing
inflation is firming after a long run of softness. But some analysts highlighted the rise
was largely driven by higher prices for gasoline, rent and apparel, which are more
  Fears about inflation have taken center stage in markets since the beginning of the
month, when strong wage growth sparked concerns the Federal Reserve would have to raise
interest rates more quickly than expected. The Dow Jones Industrial Average and S&P 500
slumped last week into correction territory — a 10% decline from their Jan. 26 highs —
but have climbed every session since then.
  The Dow rose 0.7%. The S&P 500 added 1.1%, and the Nasdaq Composite was recently up
1.6%. All three indexes pared early losses and are back in positive territory for the
  Wednesday’s data showed that the consumer-price index gained 0.5% in January after
rising a seasonally adjusted 0.2% in December. Economists surveyed by The Wall Street
Journal expected consumer prices to add 0.4%.
  Some analysts said the data showed core inflation pressures are still likely to grow
gradually, as the increase in the 12 months to January was the same as the prior month.
  “When you dig in, it’s all gas prices and clothes, which does not make long-term upward
pressure on inflation,” said Steven Chiavarone, assistant vice president and portfolio
manager at Federated Investors, which has increased stock positions recently.
  The S&P 500 and Dow Industrials fell more than 1% in the futures market immediately
following the consumer-price data and opened lower, with the Dow falling as much as 150
points before rebounding.
  Some traders said they were pondering whether the rebound in recent sessions indicates
the worst of the market pullback is over. Many have said the underlying earnings backdrop
remains in place for stocks to move higher even as they continue readjusting to the
prospect of higher rates.
  “It does feel like things have settled down…It’s quieter than it had been over the
past week,” said Yousef Abbasi, global market strategist at JonesTrading.
  Investors were also reacting to data that showed spending at U.S. retailers dropped in
January. Some analysts warned against reading too much into the data, which some said was
influenced by cyclical factors around the holiday season.
  “Inflation pressure is mounting, but it’s not out of control,” said Jeff Carbone,
managing partner at Cornerstone Financial Partners, which has been increasing positions
in smaller companies and emerging-markets firms recently. “Could we get a fourth rate
hike [in 2018]? Yes we could, but I think the market could also handle a fourth rate hike
with all the stimulus ahead of us.”
Gold futures finished at the highest level in nearly three weeks after a
hotter-than-expected headline inflation reading prompted investors to turn to the
precious metal as a hedge against rising prices.
  April gold surged, gaining $27.60, or 2.1%, to settle at $1,358 an ounce. The
gold-backed exchange-traded fund SPDR Gold Shares added 1.7%, while the VanEck Vectors
Gold Miners ETF rose 4.4%.
  March copper picked up 7.35 cents, or 2.3, to end at $3.236 a pound
  March wheat fell 1.1% to settle at $4.55 3/4 a bushel.
  Cotton futures fell 0.3% in intraday trading, unable to maintain recent gains with U.S.
sowings expected to increase this year based on an early survey. The decision by farmers
to plant more cotton would follow a year in which U.S. cotton acreage expanded 24%. The
U.S. National Cotton Council said another 3.7% increase is likely. “This will depend on
how cotton prices perform relative to other agricultural products before planting
actually beings,” Commerzbank noted.
  May raw sugar was flat at 13.44 cents a pound in intraday trading.
Oil Futures
Oil futures rebounded from early losses, ending sharply higher after a
smaller-than-expected rise in U.S. crude inventories. West Texas Intermediate crude for
March delivery on the New York Mercantile Exchange rose $1.41, or 2.4%, to settle at
$60.60 a barrel after earlier trading as low as $58.20. Oil bounced back from earlier
weakness after the Energy Information Administration said crude stockpiles rose 1.8
million barrels last week. Analysts surveyed by The Wall Street Journal had forecast, on
average, a 2.6 million barrel rise.
The U.S. dollar fell along with government bond prices after a report showed U.S.
consumer prices rose at a faster-than-expected pace.
  The Wall Street Journal Dollar Index, which tracks the currency against a basket of 16
others, fell 0.4% to 83.37.
  Expectations for ongoing expansion in the U.S. budget deficit, combined with growth of
the trade deficit to $566 billion — the widest since 2008 — pressured the dollar as
bond yields rose, analysts said. That made it more difficult for some investors to stay
in the currency.
  Overall prices rose 2.1% in the 12 months to January, matching the same annual increase
as in December. Core prices were up 1.8% on the year. Economists had expected a 1.9%
increase in overall inflation and core prices to rise 1.7%.
  Because some of the cost increases came from higher energy prices, some analysts said
inflationary pressure could wane in coming months, given February’s decline in the price
of U.S. crude oil.
  While inflation pressures have been intensifying, investors said they are not extreme,
and are made more stark by the persistent low-inflation environment prevailing in the
U.S. since the financial crisis.
  “I don’t think we’re all of a sudden in a different world,” said Ilya Gofshteyn, a
macro strategist at Standard Chartered Bank. While the inflation data could bolster the
currency by fostering the perception the Fed will face pressure to speed up its pace of
interest-rate increases, “the U.S. deficit is looking pretty nasty and is pulling in the
other direction against the dollar,” he said.
European Markets
European shares jumped, with the Stoxx Europe 600 up 1.1% at 374.54, recovering quickly
from brief sharp falls after above-forecast U.S. inflation data, which was offset by weak
U.S. retail sales numbers. “In a potential sign of resilience the markets soon shook off
those losses, with the European indices especially actually stretching their legs in the
aftermath,” said Connor Campbell at Spreadex. Germany’s DAX ended up 1.2% and France’s
CAC up 1.1%. The U.K.’s FTSE 100 ended up 0.6%. All major Stoxx Europe 600 sectors ended
higher, with basic resources, media and autos performing particularly well. Italy
outperformed, with the FTSE MIB ending up 1.8%, but Spain fared less well, with the IBEX
35 up 0.4%.
Asian Markets
In Asian trading, South Korea’s Kospi gained 1.1%, helped by a 3.1% jump in Samsung
Electronics. The index heavyweight extended its gains to 9.6% so far this week, clawing
back most of its February losses.
  Japan’s Nikkei fell 0.4%, weakening on a rallying yen after starting the day higher.
The Japanese currency rose to a 15-month high against the dollar before softening
slightly. That move came amid speculation as to who will serve under Bank of Japan Gov.
Haruhiko Kuroda in the increasingly likely event he is reappointed for a second term.

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