Headlines

* Australia inflation hits 33-year high, argues for more rate hikes, AUD soars

* New Zealand rate bets trimmed as inflation misses RBNZ forecast

* Tech leads US, European futures lower; Asia shares mixed

* Microsoft erases gains following weak guidance on business growth

FX: USD remains lacklustre and close to the cycle low at 101.52. Yesterday’s price action was choppy with mixed data releases and increased geopolitical tensions. Treasury yields were rangebound. The 10-year Treasury yield continues to trade around the 3.5% level.

EUR is testing the 1.09 mark again this morning. We had more hawkish ECB rhetoric from officials. Simkus suggested the bank would continue with 50bp rate hikes. He noted that it is unlikely that the peak rate will be seen before the summer. GBP fell to 1.2263 before trading above 1.23. USD/JPY eked out more gains. It has rebounded off support near 130.

Hot CPI data has boosted the AUD to five-month highs.Inflation printed at its highest since 1990 as money markets narrowed the odds on the RBA lifting the cash rate by 25bp to 3.35% at its meeting on February 7. The NZD faded initial support from firmer-than-expected inflation. The print matched the prior quarter but was below the RBNZ’s central forecast for 7.5%. USD/CAD trades near recent lows around support at 1.3350. The focus is on today’s BoC meeting.

Stocks: US equities were rangebound for most of the session and closed marginally in the red. Wall Street’s benchmark S&P 500 finished 0.1% lower. The Dow finished 0.31% higher. The tech-laden Nasdaq slipped 0.22%. Activity was muted due to technical issues which saw dozens of stocks briefly suspended after problems with the NYSE’s opening auction. Microsoft’s earnings beat on the bottom line and its cloud revenue also topped forecasts. But it noted growth is to slow on its commercial business. The results came after the tech giant announced plans to cut 10,000 jobs by the end of March and confirmed it will invest billions of dollars in ChatGPT bot maker OpenAI.

Asian stocks were mixed after the muted handover from Wall Street. Markets were also digesting the firmer-than-expected inflation data from Australia and New Zealand. The Kospi was among the biggest gainers on its return from the Lunar NY holiday. Strength was driven by the top-weighted stock Samsung Electronics.

US equity futures have faded initial gains after Microsoft’s results after the closing bell. Futures in Europe are pointing to a softer open (-0.3%). The cash market closed marginally higher yesterday.

Gold posted fresh highs for the recent move at $1942. The precious metal’s recent rally is up some 20% from its low in late September at $1614. That’s normally classified as a bull market. Bugs will be wary of some indicators pointing to overbought conditions.

Day Ahead – IFO, the BoC and Tesla results on tap

Stronger than expected European PMIs above 50 were two-sided showing solid labour markets and improved consumer confidence. The China reopening will also boost data going forward. But selling price pressures increased implying a possible stagflationary environment for the ECB. US flash PMIs were consistent with a modest recession. The German IFO index for January is forecast to improve further this morning after other positive leading indicators like the ZEW and PMI.

Tesla reports its Q4 earnings after the US close tonight. Analysts expect 36% revenue growth and an EPS of $1.12. Bullish forecasts are seen for 2023 as well with 30% revenue growth despite the recent slip in deliveries. Key will be comments on recent price cuts and how that hits the bottom line. Also whether the demand response will be enough to offset the price reductions.

Chart of the Day – USD/CAD waiting for a catalyst

The Bank of Canada meets this afternoon with one more 25bp rate hike expected. That would take the policy rate to 4.50%. Markets will be looking to Governor Macklem to lay the groundwork for a pause. This was mentioned at its December meeting. Policymakers want to assess the inflationary and labour market conditions after the aggressive front-loading of rate rises over the past 10 months.

A more bullish Macklem will see USD/CAD sell off and break its recent range. Support is 1.3321/52. A breakdown sees sellers test 1.3205. Last week’s high at 1.3520 may cap the upside. The 50- and 100-day SMAs sit just above 1.35 where the next Fib level resides.