European Open: UK CPI up next, USD/JPY holds 134 ahead of retail sales

Asian Indices:

• Australia's ASX 200 index rose by 10 points (0.14%) and currently trades at 7,115.40
• Japan's Nikkei 225 index has risen by 294.15 points (1.02%) and currently trades at 29,163.06
• Hong Kong's Hang Seng index has risen by 167.27 points (0.84%) and currently trades at 19,997.79
• China's A50 Index has risen by 99.78 points (0.73%) and currently trades at 13,744.20

UK and Europe:

• UK's FTSE 100 futures are currently up 19 points (0.25%), the cash market is currently estimated to open at 7,555.06
• Euro STOXX 50 futures are currently up 13 points (0.34%), the cash market is currently estimated to open at 3,818.22
• Germany's DAX futures are currently up 36 points (0.26%), the cash market is currently estimated to open at 13,946.12

US Futures:

• DJI futures are currently up 19 points (0.06%)
• S&P 500 futures are currently down -7.25 points (-0.05%)
• Nasdaq 100 futures are currently up 1 points (0.02%)

Robust retail earnings on Wall Street helped the Nikkei 225 rise above 29k for the first time in 7-months. Major benchmarks across Asia also posted gains as they tracked Wall Street higher - amidst hopes of peak inflation – as India became the latest country to exhibit signs of disinflation.

Australians getting less bang for their buck

The Australian dollar was lower overnight as wage growth was below expectations. Wages grew 0.7% q/q (0.7% previously) and 2.6% y/y, up from 2.4%. And as wage growth (or lack of) was why the RBA refrained from raising rates sooner, it takes the heat off for a more aggressive hike path going forward. And with annual CPI at 6.1% and wage growth at 2.6%, ‘real wages’ are now -3.5% y/y. And that is deflationary.

The RBNZ raised rates by 50bp points

It was pretty much a done deal and fully expected by economists and market pricing. Interest rates are now at 3% - their highest since 2015 – and it was RBNZ’s 4^th 50bp hike, and 7^th hike of the cycle. And there is likely more to follow.

UK inflation and EU GDP up next

In a few hours we get a fresh look at UK inflation. Given the BOE predict five consecutive quarters of negative growth, a lower inflation report is hardly cause for a celebration. But that’s not to say markets won’t try and celebrate it with a cheeky ‘peak inflation party’. So the bigger risk is that inflation simply picks up again, and piles further pressure on the BOE to hike their way towards a deeper recession, as quickly as possible.

But we also have flash GDP data for the Euro area at 10:00 BST. Should we get a stronger inflation print from the UK and disappointing growth figures from Europe, it could bode well for the EUR/GBP short setup discussed in yesterday’s European Open report. The pair has already broken to a 9-day low which reinforces the view that an important swing high was seen last week.

USD/JPY holds steady ahead of US retail sales

Retail sales beat expectations in June, and a repeat performance today could bode well for USD/JPY bulls. We can see on the 1-hour chart that its rally above the weekly pivot point confirmed an inverted head and shoulders pattern, and prices have now retraced within a corrective channel after hitting its target. Support has been found at the 133.89 high and the 200 and 50-bar eMA’s are nearby for potential support. From here we see the potential for an upside break and for it to target the daily R1, just below the 135 handle.

FTSE 350 – Market Internals:

FTSE 350: 4200.94 (0.36%) 16 August 2022

• 148 (42.29%) stocks advanced and 192 (54.86%) declined
• 7 stocks rose to a new 52-week high, 1 fell to new lows
• 39.71% of stocks closed above their 200-day average
• 87.14% of stocks closed above their 50-day average
• 16% of stocks closed above their 20-day average

Outperformers:

• + 24.20% - Darktrace PLC (DARK.L)
• + 8.54% - XP Power Ltd (XPP.L)
• + 5.25% - Bank of Georgia Group PLC (BGEO.L)

Underperformers:

• -11.40% - FirstGroup PLC (FGP.L)
• -6.15% - NCC Group PLC (NCCG.L)
• -4.10% - Hammerson PLC (HMSO.L)

Economic events up next (Times in BST)

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