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Daily Wrap Up 14 September 2022

14 Sep 2022 05:19 PM

Wall Streets sees mild recovery as PPI cools

US stocks have pulled back some of the ground they lost last night as US PPI cooled to 8.7%, from 9.8%. Yesterday, US markets were hammered by fears of high inflation as CPI came in above expectations, and that led to a jump in yields as bond traders took the view the Fed would deliver another large rate hike next week. PPI measures the costs that manufactures incur, and if they are falling, that can be a sign that costs will ease up for consumers. Core PPI dropped to 7.3% from 7.6%, and seeing as that metric removes volatile components like commodity prices, it is deemed to be a better measure of underlying demand. The fractional fall in core PPI could be an early sign that demand is dropping, but it is still small in the grand scheme of things. The US 10-year yield has fallen to 3.39%, and the dip suggests the bond market is not as fearful of higher rates compared with yesterday, where the yield hit 3.43%. In contrast to the mild optimism seen in the US, European indices closed in the red as worries about weaker growth, high inflation, growing debt, and increasing interest rates have hit sentiment in this part of the world.

The US dollar is down 0.4%, but keep in mind it underwent a huge rally yesterday. It was already lower this morning and the PPI report applied a little more pressure to it. EUR/USD is higher, and it is dancing around parity. GBP/USD is up, partially because of the weaker US dollar, but also because sterling is higher across the board, even though UK CPI came in at 9.9%, down from 10.1%. The Bank of England will hold its meeting next week, and considering that CPI is still way above its 2% target, traders are bracing themselves for another large hike.

WTI and Brent crude are showing strong gains as the IEA upped its demand forecast. The body predicts there will be a switch from gas to oil, and the demand forecast for October-March is now 700,000 barrels per day, which is double their previous forecast. Metals are mostly experiencing low demand, but silver is still enjoying a rally as it is up 0.8%.

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