share

Share on facebook
Share on twitter
Share on linkedin

Daily Markets: No Short Path to Bringing Inflation Down to 2% Target

Share on facebook
Share on twitter
Share on linkedin


Today’s Big Picture

Asia-Pacific equity indexes ended today’s session down across the board as yesterday’s U.S. equity meltdown made itself felt around the world, although not hitting as hard as it did here. India’s Sensex declined 0.37%, China’s Shanghai Composite fell 0.80%, South Korea’s KOSPI and Taiwan’s TAIEX dropped 1.56% and 1.59%, respectively while Hong Kong’s Hang Seng lost 2.48% and Australia’s ASX All Ordinaries closed down 2.51%. Japan’s Nikkei led the way, down 2.78% led by Consumer Services and Technology Services companies. By mid-day trading, European equity indices are down across the board, but U.S. futures are pointing to a bounce at the open later this morning, at least at the time of writing.

Yesterday, stocks were battered by the hotter-than-expected August Consumer Price Index (CPI) that revealed only a modest improvement despite the Fed’s efforts so far this year. Once again, the direction of today’s trading in U.S.-listed stocks will likely be determined by the 8:30 AM ET release of the August Producer Price Index. On a month over month basis, the headline figure for the August PPI is expected to inch 0.1% lower, but that still leads to an 8.8% increase on a YoY basis. Market watchers will be focusing on not only what the August PPI report has to say vs. the consensus forecast but how it stacks up against July’s 9.8% YoY increase for headline inflation. Similarly speaking, the core PPI reading for August is expected to rise 7.1% YoY vs. July’s 7.6% YoY print. 

If the August PPI comes in hotter-than-expected like the August CPI report, we could see the market price in the notion of a 100-basis point rate hike at the Fed’s monetary policy meeting next week. Should the August PPI come in softer, odds are the market will continue to see a 75-basis point rate hike next week, but we continue to see the November and December rate hike expectations as the ones to watch. Given President Biden’s comments yesterday that “It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy” we continue to see the return to the Fed’s 2% target not being a short path. 

Data Download

International Economy

Japan’s core machinery orders, which excludes those for ships and electric power companies, unexpectedly increased by 5.3% in July, up sharply from 0.9% growth in June and easily eating the market consensus of -0.8%. The final reading showed July industrial production in Japan rose by 0.8% MoM in July vs. the preliminary estimate of 1%. That slower figure follows the record pace of 9.2% in June. On a YoY basis, July Industrial Production fell 2%. 

For the first time in 11 months, the annual inflation rate in the UK unexpectedly moved lower, hitting 9.9% in August, down from July’s 10.1% that marked the highest reading since 1982. The consensus forecast for the data set was 10.2%. However, the UK’s August Retail Price Index remained unchanged with that for July at 12.30%, the highest level in the last year. 

Industrial Production in the Euro Area fell 2.4% YoY in July, missing the market forecast for -0.4% and compares to June’s 2.2% increase. 

Reuters reports the U.S. is considering options for a sanctions package against China to deter it from invading Taiwan, with the European Union coming under diplomatic pressure from Taipei to do the same.

Domestic Economy

While we have the usual Wednesday weekly data points that are the MBA Mortgage Applications Index and the EIA Crude Oil Inventories report, similar to yesterday what the August Producer Price Index has to say will likely dictate the tone of today’s trading. 

Markets

Hotter than expected Headline and Core CPI jolted markets so hard investors felt like they were back in 2020 as the Dow fell 3.94%, the Russell 2000 dropped 3.91%, the S&P 500 declined 4.32% and the Nasdaq Composite closed down 5.16% on the day. All sectors were down, led by Technology, Communications Services and Consumer Discretionary, each losing over 5%. Bright spots included a handful of Materials names like Corteva Inc (CTVA), and CF Industries Holdings (CFrising 0.87% and 0.67%, respectively, and Twitter (TWTR) which gained 0.80% on news that shareholders approved Elon Musk’s $44 billion buyout. Here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: -14.40%
  • S&P 500: -19.49%
  • Nasdaq Composite: -25.64% 
  • Russell 2000: -19.43%
  • Bitcoin (BTC-USD): -56.52%
  • Ether (ETH-USD): -57.26%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, BRP Inc. (BRPwill be among the companies issuing their latest quarterly results and guidance. 

Raytheon Technologies (RTX) cut its free cash flow outlook to reflect the impact of legislation requiring capitalization of research and experimentation for tax purposes. The company now expects its 2022 free cash flow to be ~$4 billion instead of ~$6 billion. Raytheon reaffirmed its 2022 EPS guidance of $4.60-4.80 vs. the $4.71 consensus.

O-I Glass (OI) now sees its September quarter EPS at the high-end or slightly ahead of its previously issued adjusted EPS guidance of $0.55-$0.60. The consensus forecast for is $0.58. Per the company its favorable September quarter performance reflects “stronger net price realization and solid operating performance while quarter-to-date shipment levels have been consistent with our expectations of flat to slight volume growth.”

Nikkei reports Apple (AAPL) plans to use latest chip producing technology from Taiwan Semiconductor (TSM) in its iPhones and Macbooks next year. Meanwhile, General Motors’ (GM) autonomous driving unit Cruise has developed its own chips for self-driving cars to be deployed by 2025.

Deadline reports Warner Bros. Discover (WBD) plans to lay off ~30% of its ad sales employees. 

Taboola (TBLA) announced a cost restructuring program that will result in an overall reduction of global headcount by ~6%.

The Wall Street Journal reports Paramount Global (PARA) is considering cutting its Showtime Over-The-Top (OTT) streaming offering, and consolidating its content into its flagship Paramount+ product.

With the needed shareholder approval to satisfy the final condition of the merger agreement, Twitter stands ready and willing to complete the merger with affiliates of Elon Musk immediately, and in any event, no later than on September 15, 2022. Now to see how this plays out given that affiliates of Musk have delivered notices purporting to terminate the merger agreement.

Altair Engineering (ALTR) announced it will acquire RapidMiner, an advanced data analytics and machine learning software provider. Terms were not disclosed.

Las Vegas Sands (LVS) and Sands China announced the submission of the Sands China group’s application for a new 10-year gaming concession in Macao. 

IPOs

AIG (AIG) spin off Corebridge Financial (CRBG) and biotech firm Jupiter Neurosciences (JUNS) are expected to begin trading today. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar

On the Horizon

Thursday, September 15

  • Japan: Import/Exports – August
  • Eurozone: Labor Cost Index – 2Q 2022
  • UK: Bank of England Monetary Policy meeting
  • US: Weekly Initial & Continuing Jobless Claims
  • US: Retail Sales – August
  • US: Empire State Manufacturing Index – August
  • US: Philly Fed Index – August 
  • US: Import/Export Prices – August
  • US: Industrial Production & Manufacturing Capacity – August
  • US: Weekly EIA Natural Gas Inventories

Friday, September 16

  • China: Industrial Production, Retail Sales – August
  • UK: Retail Sales – August
  • Eurozone: Consumer Price Index – August
  • US: University of Michigan Consumer Sentiment Index (Preliminary) – August 

Thought for the Day

“Invest for the long haul. Don’t get too greedy and don’t get too scared.” ~ Shelby M.C. Davis

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



Source link

Leave a Comment

Your email address will not be published. Required fields are marked *