Swissquote Bank: British inflation hits 11%

16 november 2022

By Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank

US stocks extended rally yesterday, as the unexpected easing in producer prices beefed up the optimism that the Federal Reserve (Fed) would soften the monetary tightening and the better-than-expected New York Empire State Manufacturing index hinted that the US economy is holding up well.

News that Russian missiles fell to Poland somehow killed a part of that falling-inflation, resilient growth optimism. But escalation of the tensions have been avoided so far, with US President Joe Biden saying that the missile was ‘unlikely’ fired from Russia. 

On the index level, the geopolitical fears remained short-lived, and the S&P500 finally rebounded to close the session 0.87% higher, a touch below the 4000 psychological mark, and Nasdaq jumped 1.45%, and flirted with its 100-DMA for the first time since mid-September.  

On the individual level, TSM was one of the biggest gainers of the session. The shares jumped more than 10% on news that Warren Buffet’s Berkshire Hathaway took around $5 billion stake in the company. Investors concluded that Buffet thinks that the selloff may have hit a bottom after a nearly 60% dive since the beginning of the year, which wiped out $250 billion in value.  

And that’s not all.  

The sun continues shining for TSM, as Apple said that they will being sourcing chips for its devices from a plant in Arizona that will be run by TSM.  

We also saw Apple jump more than 1% to $150 per share yesterday, but that was  mostly on the back of a broad Fed optimism. 

Elsewhere, Walmart surpassed both earnings and revenue expectations in the Q3, as the company could successfully pass inflation on its clients. Sales rose nearly 9%, and inventories grew only 13%, compared to 25% a quarter earlier. Cherry on top, Walmart announced a $20-billion buyback. Walmart shares jumped 6.5% yesterday, and stepped into the positive trend that was building between March 2021 and May 2022.  

Latest from US midterms 

US midterms moved closer to clarity yesterday. The Republicans are now just one seat away from controlling the House, while Democrats have the majority in the Senate, and the December 6 runoff will tell how tight the majority will be.  

What does it mean? It means that Republicans will likely block Democrats juicy spending packages, and Biden’s windfall taxes targeting oil and gas companies could never see the daylight.  

Oil up on geopolitical jitters, lower US inventories 

US crude gained on the geopolitical concerns after the Poland attack, and on a more-than-5-million-barrel decline in US oil inventories last week. The more official EIA data is due today, and the expectation is a 2-mio-barrel draw.  

US Dollar softens 

In the FX, the US dollar eased after the mixture of soft PPI and solid Empire Manufacturing revived the dovish Fed expectations.  

The EURUSD traded briefly above its 200-DMA, near 1.0420 on the back of a broadly softer greenback. Better-than-expected improvement in the German ZEW economic sentiment index gave an additional boost to the single currency.  

In Britain, Cable hit the 1.20 for the first time since this summer. On the data front, UK inflation data showed that inflation in the UK hit 11.1% in October vs 10.7% penciled in by analysts. That, combined with wages that rose at the fastest pace in over a year revived the hawkish Bank of England (BoE) expectations, although, the BoE insisted that the rate hikes won’t be as aggressive as the Fed’s due to unideal macroeconomic conditions.  

Rishi Sunak will announce the British budget this Thursday and may need to squeeze the Brits hard to fill in the budget gap. According to a survey on Bloomberg, Britain needs £185 billion pounds to fund its budget.  

But because Liz Truss’ tax cuts backfired big time, Rishi Sunak will be relatively comfortable in announcing higher taxes, including windfall taxes on energy companies’ eye-watering profits.  

Today, we will be watching the US retail sales, the Canadian inflation, the BoE monetary policy report hearings, Andrew Bailey testify before Parliament, Christine Lagarde speak, Siemens, Cisco and another US retailer Target release earnings.