AFP

Equities fell Wednesday, tracking a drop on Wall Street ahead of a crucial US inflation report later in the day, which could have a huge bearing on the Federal Reserve’s plans for raising interest rates.

Investors are preparing for the consumer price figures with a sense of dread as analysts warn a forecast-beating reading would ramp up bets on another big Federal Reserve hike and reinforce recession expectations.

The US central bank has said its decision on when and by how much to tighten monetary policy will be driven by data as it struggles to walk a fine line between bringing inflation down from four-decade highs and trying not to damage the economy.

There had been hope that recent indicators showing activity slowing would give the Fed room to be less hawkish. But a bigger-than-predicted jump in jobs last month revived talk of a third straight three-quarter-point hike in September.

“The (Fed policy board) will need to make sure inflation moves back towards target sustainably before contemplating pausing its tightening cycle,” Carol Kong, of Commonwealth Bank of Australia, said.

“A strong inflation outcome today will likely reinforce the (board) is still some way away from that point yet, and see markets readjust higher their expectations for US interest rates.”

Wednesday’s figures come at a sensitive time for world markets, which have been buffeted by a range of other issues including the war in Ukraine, supply chain snarls and rising China-US tensions over Taiwan.

While the latest earning season has been less painful than feared, there are increasing signs that the economic slowdown is beginning to impact companies, with some major firms — including Apple and Amazon — providing downbeat outlooks.

Chip-maker Micron became the latest, saying revenue would likely come in at the low end of its forecasts in the fourth quarter owing to weak demand. That came a day after rival Nvidia unveiled disappointing results.

Tech firms led losses in New York, with the Nasdaq off more than one percent, and they did so in early Asian trade.

Hong Kong led losses, shedding two percent, while Shanghai, Tokyo, Sydney, Seoul, Mumbai, Wellington, Taipei, Bangkok and Jakarta also dropped.

Traders were unmoved by the news that China’s consumer price index rose last month to a two-year high but came in below expectations.

London, Paris and Frankfurt were also down in the morning.

Oil prices sank and remain stuck around six-month lows, even after news that supplies from Russia to three European countries through Ukraine had been halted as sanctions prohibited the processing of the transit payment.

The cost of the commodity has essentially wiped out all the gains seen since Russia’s invasion of its neighbour in February as expectations of a recession hit demand forecasts, while consumers are put off buying petrol owing to rising prices.

But OANDA’s Edward Moya said the market would not likely weaken further.

“Whatever crude demand destruction that occurs from a weakening global economy won’t be able to drag down oil prices much lower given how low the supply outlook remains,” he said in a note. 

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 0.7 percent at 27,819.33 (close)

Hong Kong – Hang Seng Index: DOWN 2.0 percent at 19,610.84 (close)

Shanghai – Composite: DOWN 0.5 percent at 3,230.02 (close)

London – FTSE 100: DOWN 0.1 percent at 7,4478.76

Euro/dollar: DOWN at $1.0203 from $1.0213 Tuesday

Pound/dollar: UP at $1.2083 from $1.2071

Euro/pound: DOWN at 84.44 pence from 84.57 pence

Dollar/yen: DOWN at 135.00 yen from 135.12 yen

West Texas Intermediate: DOWN 0.8 percent at $89.79 per barrel

Brent North Sea crude: DOWN 0.6 percent at $95.69 per barrel

New York – Dow: DOWN 0.2 percent at 32,774.41 (close)

Deliveroo, the international delivery food app, announced Wednesday a big increase in losses as investment costs ate into rising revenues, adding it planned to exit its struggling Netherlands market.

Loss after tax jumped 41 percent to £153.8 million ($186 million) compared with the first six months of last year, the British group said in a statement.

Revenue grew 12 percent to £1 billion despite easing Covid curbs and controversy over treatment of its riders.

Deliveroo said the outlook was clouded by strong inflation and the Ukraine war. 

However, company founder and chief executive Will Shu expressed confidence in the company’s ability “to adapt financially to any further changes in the macroeconomic environment”. 

– Netherlands exit –

Deliveroo said it “proposes to consult on ending its operations in the Netherlands”, noting it did “not hold a strong local position” in the country.

The company added that it “would require a disproportionate level of investment, with uncertain returns, to reach and sustain a top tier market position”.

A planned exit from the Netherlands towards the end of November follows Deliveroo’s departure from Spain last year, although the group on Wednesday said it had gained market share in the UK and Italy.

It added that overall marketing and other investment costs, including spend on technology, jumped 29 percent to almost £369 million in the first half.

Deliveroo has enjoyed strong sales growth in a short space of time but faces questions over its sustainability, highlighted by its failed stock market debut which took place in London last year.

Its initial public offering was the capital’s biggest stock market launch for a decade, valuing the group at £7.6 billion.

But its share price tumbled on launch day by almost a third from the IPO price of £3.90 as investors questioned Deliveroo’s treatment of its self-employed riders.

A French court of appeal last month found Deliveroo guilty of “undeclared work” for classifying a courier as an independent contractor instead of an employee.

In early London trading following Wednesday’s earnings update, Deliveroo’s share price rose 0.8 percent at 92 pence.

“Stay-at-home stocks like Deliveroo fared extremely well during the pandemic when restaurants and bars were shut and households were forced into lockdown,” noted Victoria Scholar, head of investment at Interactive Investor. 

“However, the reopening of the economy combined with stiff competition from the likes of Just Eat and Uber Eats and q-commerce (quick-commerce) players like Gorillas and Go Puff, as well as the cost-of-living crisis, have created an extremely challenging environment.”

Hong Kong carrier Cathay Pacific on Wednesday reported losses had narrowed in the first half after an “extremely difficult start” to the year, but said its capacity will improve in coming months as travel sentiment improves.

The US$637 million loss in January-June was narrower than the US$968 million deficit suffered in the same period last year, as the airline benefited from strong cargo demand and cost-cutting measures.

Chairman Patrick Healey said in a statement that the first few months were “particularly unfavourable” as pandemic-related travel restrictions severely constrained Cathay’s flight operations and greatly affected demand for travel.

But he added that the airline was gearing up for borders reopening and expected a stronger second-half.

Cathay aims to boost passenger flight capacity to a quarter of pre-pandemic levels by the end of 2022, while it is looking to lift cargo capacity to 65 percent, Healey said.

The airline carried 335,000 passengers in the first half of the year, more than double that of the same period in 2021, bringing in US$263 million in revenue. Income from the cargo unit jumped 9.3 percent to US$1.5 billion.

Total revenue was up 17 percent on-year at US$2.4 billion.

Hong Kong has taken tentative steps toward reopening its borders after being internationally isolated for two and a half years owing to strict Covid rules for travellers.

On Monday authorities said visitors would now have to spend just three days in hotel quarantine, down from seven and much lower than the three weeks earlier in the year.

Cathay praised the adjustments as “positive steps” but pressed the government to “urgently provide a clear roadmap” to remove all pandemic-related restrictions on passengers and aircrew.

The firm’s ability to operate more flights “continues to be severely constrained by a bottleneck on crewing resources under the existing quarantine requirements”, Healey said on Wednesday.

Last month, Hong Kong also suspended a circuit-breaker mechanism that penalised airlines for bringing in coronavirus cases — which had affected numerous Cathay routes, including for key markets such as the United States and Britain.

The airline operated just 29 destinations in January, compared with more than 100 before the pandemic.

Hong Kong authorities are hinting at a potential international reopening in November, timed to coincide with the high-profile Rugby Sevens tournament and a banking summit.

Cathay is bringing aircraft parked overseas back to Hong Kong and is aiming to hire more than 4,000 front-line employees over the next 18 to 24 months, Healey said.

In June, Hong Kong also extended the drawdown period of a US$1 billion bridge loan to Cathay — the second time in two years — as part of a US$5 billion government bailout to help the airline weather the pandemic.

Hong Kong’s home carrier suffered a reputational blow earlier this year when a coronavirus outbreak was traced to two of its flight attendants who breached their quarantine rules. They were fired and later prosecuted.

Is inflation finally slowing down in the United States?

Inflation data due to be released Wednesday is expected to show at least a partial cooling down of consumer prices and bring a breath of fresh air for US President Joe Biden just months before crucial midterm elections.

Fueled by aggressive consumer spending of pandemic savings, global supply chain snarls, domestic worker shortages, and Russia’s war on Ukraine, inflation reached 9.1 percent in June, year over year, the highest in 40 years.

But it is expected to fall to 8.6 percent in July, according to MarketWatch.

White House spokeswoman Karine Jean-Pierre said that although the administration has not seen the fresh statistics yet, “We know that gas prices have fallen.”

“And we hope those gas price declines will factor into the CPI inflation data,” Jean-Pierre told reporters Tuesday.

Consumer prices have continued to climb in the United States, squeezing family budgets and, and by extension, Biden’s popularity.

His opponents accuse Biden of precipitating inflation with his gigantic $1.9 trillion coronavirus relief package, which he enacted in March last year, shortly after assuming office.

And Republicans renewed their criticism of Biden’s economic policy, saying Sunday’s passage in the Senate of his massive climate and healthcare bill titled the “Inflation Reduction Act,” does the opposite of its stated purpose.

– Larger issue –

But the devil is in the details. 

Experts worry that the inflation slowdown linked to the drop in gasoline prices could be outweighed by rising rent and real estate prices.

“The larger issue is what happens to home ownership costs & rents,” Diane Swonk, chief economist for KPMG, wrote on Twitter.

Similar to other economists, Swonk expects to see a rise in the so-called underlying inflation rate that excludes food and energy, which had risen to 5.9 percent in June, year over year.

The question now facing Washington is whether it will be possible to bring inflation down sustainably, without plunging the world’s largest economy into recession, after two quarters of economic contraction.

In a bid to tamp down inflation, the US Federal Reserve has already hiked the interest rate four times to a range of 2.25 to 2.5 percent.

On the bright side, the US labor market remains dynamic and in July the unemployment rate fell to the pre-pandemic level of 3.5 percent.

But there are still nearly two jobs open for every available worker, which pushes wages up and contributes to inflation.

Inflation data will be released Wednesday at 8:30am local time (1230 GMT).