Overseas markets have turned back downward overnight. In Asia Pacific trading Seoul fell 2.3%, Tokyo lost 1.3% and Hong Kong dropped 1.6%. In Europe this morning, London is flat, Frankfurt is down 0.2% and Paris plus Milan are down 0.5%. Commodity prices are also under heavy pressure today. US and Brent Crude Oil are down 2.1%, Natural Gas is down 3.6% and Copper is down 1.4%. In currency trading, the Australian Dollar is down 1.1%, while the Loonie, Euro and Pound are down 0.3% and Gold is down 1.25%.
The Reserve Bank of Australia announced a widely expected 0.25% increase to its benchmark cash rate to 4.35%. The central bank blamed inflation saying it “has passed its peak but is still too high and is proving more persistent than expected”. They also indicated “the risk of inflation remaining higher for longer has increased”. Finally they described what keeps central bankers awake at night “ if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment”. The full RBA statement can be found here: https://www.rba.gov.au/media-releases/2023/mr-23-30.html
This all suggests that ongoing inflation pressure on central banks to keep interest rates higher for longer may remain a headwind for equities, bonds and commodities for some time to come. Today five Fed members and one Bank of Canada official are speaking which may give some colour on how North American central bankers are feeling these days.
In addition to high inflation, the other side of stagflation, a soft economy, has also reared its ugly head overnight. China announced a trade surplus well below expectations ($56.5B vs street $81.9B), which was impacted by a deeper than feared decline in exports (-6.4% vs street -3.1%) and higher than expected imports (+3.0% vs street -5.4%). In North America, Canada posted a stronger than expected trade surplus ($2.0B vs street $0.9B), while the US posted a worse than expected trade deficit ($-61.5B vs street -$60.2B).
In earnings news, Uber ($0.10 vs street $0.07) and homebuilder DR Horton ($4.45 vs street $3.95) beat the street on earnings but their stocks are not doing much in premarket action. Meanwhile WeWork is down another 24.7% this morning after filing for bankruptcy protection.
