Morning Minutes

High Inflation and Increasing Geopolitical Tensions Weigh on Stocks




With Monday’s market gains downshifting into flat to slightly lower US markets and US index futures falling 0.2% to 0.6% this morning, dominance in equity markets has shifted from bulls to bears as the week has progressed.

Tensions in Israel and Gaza continued to grow overnight following an explosion at a hospital in Gaza City. WTI and Brent Crude Oil are both up 2.0% on this news while Gasoline is up 1.2%. A 4.4 mmbbl drawdown in API weekly US oil inventories announced last night may also be behind today’s rally. Metals trading suggests a flight to safety continues with Gold rallying 1.25% and Silver gaining 1.8%. United Airlines indicated that it expects rising fuel costs and the cancellation of flights to Israel during this war to impact its results as well..

Copper is up 1.0% today, boosted by better than expected GDP (4.9% vs street 4.4%) Retail Sales (5.5% vs street 4.9%), and Industrial Production (4.5% vs street 4.3%) reports out of China overnight. This positive news did not help Chinese stocks as Hong Kong fell 0.25% and Shanghai lost 0.8% in today’s trading.

Equities in North America have also failed to respond to positive news, in this case, on the earnings side. United Airlines ($3.65 vs street $3.38), Morgan Stanley ($1.38 vs street $1.31), and Procter & Gamble ($1.83 vs street $1.72) have seen positive numbers fail to move the needle with investors. On the other hand, investors also haven’t really reacted to an earnings miss from insurer Travelers ($1.95 vs street $2.99), suggesting that investors’ focus is elsewhere. After the close today, Tesla* and Netflix report results, which may attract more attention.

Over in Europe, the Dax is down 0.5% and the FTSE is down 0.6% with inflation reports providing the primary headwind. UK consumer prices (6.7% vs street 6.5%), UK retail prices (8.9% vs previous 9.1%), and Eurozone consumer prices (4.5% in line) all remained elevated, keeping the pressure on central bankers to remain vigilant in inflation.   

In North America, Canadian housing starts (270K vs street 240K) beat expectations, a welcome development amid the housing shortage, while in the US, housing starts were slightly worse than expected. The Fed dominates the calendar for the rest of the day with four FOMC members speaking and the Beige Book regional economic report due at 2:00 pm EDT.   

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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