Stocks Fall as GDP and Inflation Reports Suggest Stagflation

A significant miss in US Q4 GDP, which came in well below expectations (1.4% vs Street 3.0% and previous 4.4%), has sparked a stock market selloff.


On the inflation front, Canada producer price inflation jumped in January, with both industrial prices (2.7% vs Street 0.2%) and raw material prices (7.7% vs Street 0.7%) coming in well above expectations. US Core PCE inflation for December (2.9% vs Street 2.8%) also indicated that inflation pressures may be building.


The prospect of stagflation, a period marked by weakening economic growth and rising inflation pressures, has weighed on equities since the data were released. US index futures, which had been flat beforehand, have moved lower in recent minutes and are now down 0.2% to 0.3%, trading near their lows of the morning.


Flash PMI reports from Europe and Asia have generally come in at or above 50.0, suggesting continued expansion, with most slightly above Street expectations. US Flash Manufacturing PMI (Street 52.6) and Flash Services PMI (Street 53.0) are due at 10:00 am, alongside US Michigan Consumer Sentiment (Street 57.3) and catch-up US new home sales reports for November and December.


Capital appears to be rotating back into precious metals following the data. Gold is up 1.0%, while Silver is up 3.6%. Commodity markets are relatively quiet, with Copper up 0.1% and Crude Oil down 0.4%.

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