Equity markets were already struggling yesterday and overnight as investors continued to digest the deluge of earnings reports that have been coming out this week. In the last few minutes, selling pressure has intensified in the wake of US economic numbers that scream STAGFLATION (low economic growth and high inflation).
US Q1 GDP slowed and disappointed dramatically (1.6% vs street 2.5% and previous 3.4%), which would have been bad enough but on top of Q1 Core PCE inflation jumped more than expected (3.7% vs street 3.4% and previous 2.0%). Although monthly core PCE inflation is due tomorrow, these numbers may pretty much slam the door on a June rate cut ahead of next week’s Fed meeting. If somehow the central bank did leave the door open to lower interest rates, investors may be more likely to interpret that as a sign of a crumbling economy, not victory over inflation or a soft landing.
In the wake of this news, US index futures are down 1.0% to 1.5% while the US 10-year treasury note yield has climbed up above 4.65%. European markets are mixed with the FTSE up 0.75% and the Dax down 0.5%. With the US reporting a big inventory drawdown last week, US Crude Oil is up 0.5%, and Copper has popped 1.8%, potentially adding to inflation pressures. Gold continues to consolidate previous gains, holding steady this morning, while Bitcoin is down 0.75%.
The GDP report has not been able to completely overshadow earnings season and there is a lot of market action today in the wake of earnings reports. Meta Platforms* fell 19% in aftermarket trading and is currently down 15.9% despite an earnings beat ($4.71 vs street $4.32) as traders used talk of spending money on AI and the Metaverse as an excuse to head for the door.
Other notable movers following overnight earnings reports include Chipotle* (up 3.4% premarket), Caterpillar* (down 6.2% premarket), Union Pacific (up 4.0% premarket) and Merck (up 2.5% premarket). After the close today results are due from Microsoft* and Alphabet, followed by Exxon Mobil, Chevron and Imperial Oil* tomorrow morning.
*Shares of Meta Platforms, Microsoft, Caterpillar and Imperial Oil are held in portfolios managed by SIA Wealth Management.