US open: Stocks surge as evidence mounts that inflation is cooling

US futures

Dow futures +1% at 33911

S&P futures -0.3% at 4027

Nasdaq futures -0.6% at 12018

In Europe

FTSE -0.15% at 7379

Dax  +0.4% at 14394

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PPI cools by more than expected

US stocks are soaring after US PPI data added to growing evidence that US inflation is cooling, fueling bets that the Fed could slow the pace of hikes.

US PPI dropped to 8% YoY in October, down from 8.4% and below forecasts of 8.3%. On a monthly basis, PPI cooled to 0.2%, below expectations of 0.4%.

PPI is often considered a lead indicator of CPI, so the data suggests that a further cooling in CPI is on the way. The evidence is looking more and more convincing that inflation is falling. This builds on expectations that the Fed will slow the pace of rate hikes.

While Fed speakers, such as Lael Brainard, have suggested that the time could be approaching for less aggressive rate hikes, they have also been keen to point out that there is still work to do to bring inflation lower. However, the market sees the light at the end of the rate-hiking tunnel, even if that is in 2023, which is helping boost sentiment and lift demand for stocks. Meanwhile, the USD is tumbling lower as a less hawkish Fed is starting to look likely.

Corporate news:

Walmart expects a smaller drop in annual profits and announced a $20 billion share buyback programmer. Sales rose almost 9% in Q3 as shoppers across income levels bought groceries from Walmart. EPS  was $1.50 ahead of the $1.32 forecast, and revenue came in at $152.81 ahead of estimates of $147.75

Home Depot is falling despite upbeat results. The home improvements retailer reported an EPS of $4.24 on revenue of $38.9. This was well ahead of the $4.12 on revenue of $37.96B forecast

Where next for the Nasdaq?

The Nasdaq has extended its rebound, pushing above the 50 sma and the October high of 11680. This, combined with the RSI above 50, keeps buyers optimistic about further upside. Buyers will look for a rise over 12000 the 100 sma and falling trendline resistance to bring 12900, the September high, into focus. Sellers could look for a move below 11680 to bring the price back into the holding channel. It would take a move below 10620, the November low, to create a lower low.

FX markets – USD drops, GBP jumps.

The USD is falling after brief gains yesterday.  Rising expectations that the Fed is set to slow the pace of rate hikes are pulling the USD lower.

EURUSD is rising to a 4-month high, boosted by improving German economic morale. The ZEW economic sentiment index rose to -36.7 in November, up from -59.3. Hope that inflation will start to ease soon is helping to alleviate pessimism.

GBPUSD is rising after UK labour market data showed that wages grew at the fastest pace in more than a year in September, adding to those inflationary pressures which are concerning the BoE. Average earnings, excluding bonuses, rose 5.7% YoY. The data comes ahead of the Chancellor’s Autumn Budget on Thursday, where he will look to fill a £50 billion back hole, which has been partly created by chronic labour shortages in the UK.

GBP/USD  +1.5% at 1.19

EUR/USD  +0.8% at 1.04

Oil falls as China data disappoints

Oil prices remain pressurized on Tuesday as investors continue to fret over slowing growth in China and after OPEC downwardly revised the oil demand outlook.

Data from China, the world’s largest oil importer, showed that factory output and retail sales were weaker than expected as the economy struggles in the face of strict COVID measures.

While China has eased some COVID measures, rising numbers and ongoing lockdowns are overshadowing any positive developments, meaning that COVI remains a key downside risk.

Investment bank JP Morgan cut its quarterly and full-year forecasts for economic growth in China owing to its high COVID cases.

OPEC cuts its oil forecast for a fifth time this year on Monday as the global economic outlook deteriorates

WTI crude trades -1.5% at $87.14

Brent trades -1.4% at $94.14

Learn more about trading oil here.

Looking ahead

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