Global Markets Report - 14 September

Australia

Australian shares are poised to edge lower following a choppy day of trading in the US. Investors largely responded positively to August inflation data, having expectations that the Fed will hold interest rates steady following next week’s policy meeting.

ASX futures were down 5 points or 0.07% to 7153 as of 9:00am on Thursday, pointing to a fall at the open.

US stocks end narrowly mixed after a choppy day of trading as August inflation arrived mostly as expected. Investors largely liked what they saw in Wednesday's inflation report, solidifying their bets that the Federal Reserve will hold interest rates steady at the end of next week's policy meeting. Losses by Caterpillar and 3M weigh on the Dow Industrials, while the Nasdaq outperforms behind strength in some big technology companies.

Major stock indices were modestly higher for most of the day before losing some momentum in the final 90 minutes of the session. The S&P 500 added 0.1%, the Nasdaq Composite rose 0.3%, and the Dow Jones Industrial Average fell 0.2%. Treasury yields were little changed, with the yield on the 10-year note falling to 4.248% from 4.263% on Tuesday.

The consumer-price index rose 0.6% in August from the prior month, the fastest pace in more than a year. Higher gasoline prices were responsible for more than half of the increase. Core prices -- which exclude volatile food and energy categories and are the preferred gauge of the Fed -- rose a more modest 0.3%, slightly above the 0.2% estimate of economists surveyed by The Wall Street Journal.

Traders appeared to breathe a sigh of relief that the report didn't come in hotter than expected. Stock futures initially pulled back, and bond yields inched up, in the minutes following the report, but markets quickly settled.

Treasury yields rose sharply in August amid fears that a flurry of strong economic data might force the Fed to lift interest rates further to fight inflation. The 10-year yield has steadied at around 4.3% in recent weeks.

In commodity markets, Brent crude oil fell slightly by 0.20% to $US91.88 a barrel, Gold remained flat at $US1,909.06 and Iron ore rose by 0.3% to $US119.45 a tonne.
In local bond markets, the yield on Australian 2 Year government bonds remained flat at 3.85% while the 10 Year was unchanged at 4.13%. Overseas, the yield on 2 Year US Treasury notes edged lower to 4.97% and the yield on the 10 Year US Treasury notes was down marginally at 4.25%.

The Australian dollar remained relatively unchanged at 64.20 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged higher to 99.04.

Asia

Chinese shares ended lower, in tandem with other markets in the region, as domestic investors await more stimulus or signs of economic rebound. Most sectors closed lower with software makers and automakers leading the losses. Beijing Kingsoft Office Software declined 3.0%, iFlytek declined 2.95% and Great Wall Motor was 1.7% lower. Financial stocks were also lower. Citic Securities declined 0.5% and Haitong Securities was 1.7% lower. The benchmark Shanghai Composite Index closed 0.45% lower at 3127.07 while the Shenzhen Composite Index and the tech-heavy ChiNext Price Index each fell 1.1%.

Hong Kong shares ended slightly lower, extending their run of losses to a sixth straight session. Investors were cautious ahead of US CPI data due later in the day, which will be looked at for insight into the Fed's next rate decision. Retail and tech companies led the losses, with Meituan dropping 1.4% and Baidu falling 0.95%. Energy and real-estate companies gained. ENN Energy increased 1.4%, China Resources Power rose 0.9% and Henderson Land Development climbed 1.7%. Meanwhile, Apple supplier Sunny Optical jumped 3.1%. The benchmark Hang Seng Index fell 0.1% to 18009.22, while the Hang Seng Tech Index ended 0.6% lower.

Japanese stocks end lower, dragged by falls in electronics stocks, as caution continues over the Fed's further tightening. Hitachi Ltd. drops 2.6% and Keyence Corp. sheds 1.6%. The Nikkei Stock Average fell 0.2% to 32706.52. Investors are focused on US consumer inflation data due later in the day and its implications for the Fed policy. The 10-year Japanese government bond yield stayed flat at 0.705%.

Indian shares closed higher, extending gains for the ninth session, as domestic inflation cooled. August inflation eased to 6.8% on year on the back of moderating vegetable prices, but price pressure around cereals and oilseeds remained firm, economists at HSBC said in a research note. Public-sector and heavyweight bank stocks led gains. Axis Bank rose 1.6% and IndusInd Bank climbed 1.8%. Bank of India surged 5.4% and Coal India gained 3.3%. Among losers, Mahindra & Mahindra dropped 1.3% and Larsen & Toubro declined 1.2%. Investors await US inflation data due later in the day, which will provide more insights into the Federal Reserve's next move. The benchmark Sensex closed 0.4% higher at 67466.99.

Europe

European stocks closed lower, with the pan-European Stoxx 600 index down 0.3% at 453.94, on caution ahead of a European Central Bank interest rate decision on Thursday as money markets price a significant prospect of a rate increase. "European markets remain nervous as they await tomorrow's ECB decision," writes Chris Beauchamp, analyst at online trading platform IG. Industrial and retail stocks were among the biggest fallers.

Germany's DAX and France's CAC 40 closed down 0.4%.

The U.K.'s FTSE 100 outperformed, however, ended only marginally lower, with property stocks gaining as weak U.K. GDP data could mean fewer interest-rate increases from the Bank of England.

North America

US stocks end narrowly mixed after a choppy day of trading as August inflation arrived mostly as expected. Investors largely liked what they saw in Wednesday's inflation report, solidifying their bets that the Federal Reserve will hold interest rates steady at the end of next week's policy meeting. Losses by Caterpillar and 3M weigh on the Dow Industrials, while the Nasdaq outperforms behind strength in some big technology companies.

Major stock indices were modestly higher for most of the day before losing some momentum in the final 90 minutes of the session. The S&P 500 added 0.1%, the Nasdaq Composite rose 0.3%, and the Dow Jones Industrial Average fell 0.2%. Treasury yields were little changed, with the yield on the 10-year note falling to 4.248% from 4.263% on Tuesday.
The consumer-price index rose 0.6% in August from the prior month, the fastest pace in more than a year. Higher gasoline prices were responsible for more than half of the increase. Core prices -- which exclude volatile food and energy categories and are the preferred gauge of the Fed -- rose a more modest 0.3%, slightly above the 0.2% estimate of economists surveyed by The Wall Street Journal.

Traders appeared to breathe a sigh of relief that the report didn't come in hotter than expected. Stock futures initially pulled back, and bond yields inched up, in the minutes following the report, but markets quickly settled.

Treasury yields rose sharply in August amid fears that a flurry of strong economic data might force the Fed to lift interest rates further to fight inflation. The 10-year yield has steadied at around 4.3% in recent weeks.

"The market is starting to focus on growth again as opposed to higher rates," said Chris Marangi, co-chief investment officer of value at Gabelli Funds. "That's a positive."
Strong consumer spending continues to power a surprisingly resilient economy, but the resumption of student loan payments and rising gas prices could threaten that momentum, Marangi added. Americans' spending power fell in August, with the average hourly wage rising 0.2% compared with a 0.6% rise in prices.

Further out, the outlook for interest rates is less certain. Traders in the derivatives market see a 97% chance that the Fed leaves its policy rate unchanged at its Sept. 20 meeting, but they are pricing in a 40% chance of a quarter-point rate increase at the central bank's November meeting, according to CME Group.

"There is no evidence the Fed can become complacent as they consider an overall economy which appears to be accelerating in the third quarter of 2023," said Steve Wyett, chief investment strategist at BOK Financial. "Inflation is not overly hot, but it might be the easy improvements are behind us."

Moderna was among the S&P 500's best performers Wednesday, advancing 3.2%, after the drugmaker said it expects $10 billion to $15 billion in additional annual revenue by 2028 thanks to new products.

Citigroup shares also advanced after the bank unveiled a management reorganization. Chief Executive Jane Fraser is shaking up the bank's upper management levels, shedding layers and overlapping roles in her latest bid to simplify the sprawling organization. Citigroup shares closed 1.7% higher.

American Airlines and Spirit Airlines both declined after cutting their forecasts, sending other airlines lower as well. Both carriers said jet fuel expense will be higher than previously forecast because of rising oil prices.