Higher Inflation Hammers Stocks

Despite US indices like the Dow and the S&P hitting all-time highs yesterday, upward momentum was slowing and markets finished mixed with the Dow up 0.3% and the NASDAQ down 0.3% on the say. Today momentum has tipped over and turned sharply downward with US index futures dropping 0.8% to 1.6%, while the Dax is down 0.8% and the FTSE is down 0.4%.

The spark for this bearish turn in sentiment has been worse than expected inflation readings. US consumer prices (3.1% vs street 2.9% and previous 3.4%) and UK average earnings excluding bonus (6.2% vs street 6.0% and previous 6.7%), fell less than hoped, indicating that inflation has not been tamed.

This news has added to the case for central banks keeping interest rates higher for longer and undermined the case for near-term rate cuts, sparking a rally in traded interest rates. The US 10-year treasury note yield is up above 4.25% again and the 10-year German Bund yield has climbed up toward 2.40%. The US Dollar is also rallying today, gaining 0.3% against gold and copper, plus 0.5% against the Euro and the Canadian Dollar. Energy trading is mixed with US crue oil up 0.75% and Natural Gas down 0.6%.

Another round of earnings are out this morning with results generally beating expectations, but stocks trading either marginally up or sharply down, as has often been the case this earnings season. Headliners include Shopify* ($0.34 vs street $0.30, down 8.4% premarket), Marriott ($3.57 vs street $2.12, down 3.8% premarket), Restaurant Brands ($0.76 vs street $0.75, up 1.0% premarket), and Coca-Cola ($0.49 in line, up 1.5% premarket). After the close today, results are due from AirBNB. Tomorrow, results are due from several Canadian insurers, mining and forest products companies.

*Shares of Shopify are held in some portfolios managed by SIA Wealth Management.

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