By Geoffrey Smith
Investing.com -- The effects of Tuesday's shocking U.S. inflation report for August continue to ripple through world markets, as Wall Street braces for the monthly producer price report. The yen bounces as Japan's Finance Minister signals preparations to intervene in the currency markets. Alphabet loses an appeal against a $4 billion antitrust fine from the EU, while the EU appears to have dropped its plan for a price cap on Russian gas imports. Oil prices bounce as President Biden signals a possible refilling of the Strategic Petroleum Reserve - albeit that will require prices to fall a bit further first. Here's what you need to know in financial markets on Wednesday, September 14.
1. U.S. CPI ripples through global markets
The shock of the August CPI report in the U.S. rippled through global markets, with the dollar holding on to most of its Tuesday gains, European stocks extending their losses, and Asian stocks slumping, as markets priced in the risk that the Federal Reserve may now hike the Fed Funds rate by a full percentage point next week.
The shift in sentiment that was caused by the higher-than-expected print in core inflation could be corroborated at 08:30 ET (12:30 GMT) with the release of producer price inflation numbers for August. These will give a clearer indication of whether companies are still able to expand or at least defend their profit margins. An indication of the pressure on margins came out late Tuesday with Amazon (NASDAQ:AMZN) having to throw another $450 million at ensuring it has enough drivers for the coming holiday season.
Analysts expect the PPI to show the same pattern as consumer inflation, with the fall in gasoline prices generating a negative headline number, but with core price growth accelerating to 0.3% from 0.2% in July.
2. Yen bounces as Japan moves closer to intervention
Tuesday's surge in the dollar prompted the clearest sign yet that Japan is preparing to intervene in foreign exchange markets to support the yen.
Newswires reported that the Bank of Japan carried out “rate checks” with forex traders, a step that traditionally is a prelude to actual market intervention.
“Recent moves are rapid and one-sided, and we're very concerned,” Finance Minister Shunichi Suzuki told reporters, confirming that intervention was on the table. “If such moves continue, we must respond without ruling out any options."
The yen, whose status as a funding currency gives it a central role in wholesale financial markets, rose 1% against the dollar and by 1.5% against the Chinese yuan in response.
3. Stocks steady ahead of PPI after worst rout in two years
U.S. stock markets are set for a bounce of the dead-cat variety at the open, pending the release of the PPI numbers, as traders lick their wounds while simultaneously marveling at President Joe Biden’s claim of victory over inflation on Monday.
By 06:15 ET, Dow Jones futures were up 116 points, or 0.4%, while S&P 500 futures were up 0.5%, and Nasdaq 100 futures were up 0.6%. The main cash indices had suffered their worst one-day decline in over two years on Tuesday after August’s CPI report suggested that core inflation is still accelerating.
Stocks likely to be in focus later include Alphabet (NASDAQ:GOOGL), after Google’s appeal against a $4.3 billion fine from the European Union was largely rejected, and Inditex ADRs (OTC:IDEXY), which are up after the owner of Zara and Massimo Dutti put out a bullish update overnight in Europe.
4. EU drops gas price cap idea after member states' pushback
The European Union appears to have dropped its plans to put a cap on the price of natural gas, after member states failed to agree on how to do it.
A ‘State of the Union’ speech by European Union Commission President Ursula von der Leyen nonetheless repeated plans to impose a windfall tax on both oil and gas companies and a mechanism for decoupling wholesale electricity prices from gas prices. She also stuck to plans to impose a mandatory cut in peak electricity consumption this winter, although it appears likely that member states will keep the final say over how that is achieved.
Elsewhere, French grid operator RTE warned of partial and local blackouts in the coming winter. Benchmark European natural gas futures rose 5.7% in response, supported also by awareness of the risk that Russia's recent battlefield losses may trigger a more extreme reaction in the ongoing energy war, which drove Eurozone industrial production by a painful 2.3% in July.
5. Oil rebounds as Biden eyes refilling SPR; EIA data due
Crude oil prices recouped around half of their losses on Tuesday, when the dollar’s surge and a big crude stock build reported by the American Petroleum Institute put fresh pressure on prices. The government’s data are due at 10:30 ET as usual and analysts expect a rise of 833,000 barrels from the previous week.
The market was supported by signs that the U.S. is preparing to restock its Strategic Petroleum Reserve, President Joe Biden indicating the government will return to the bid when (or if) prices fall to $80 a barrel.
Even so, gains were capped as the International Energy Agency trimmed its demand forecasts for the year in its latest monthly report. WTI was up 0.4% at $87.67 a barrel, while Brent was up 0.2% at $93.36 a barrel.