Morning Minutes

High Inflation, Poor Earnings and Yellen Comments Crush Stocks and Oil

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The first day of US earnings season finds index futures getting hammered 1.1% to 1.6%, accelerating yesterday’s US index losses of 0.2%-0.6%. European markets are also selling off today with the Dax down 1.3% and the FTSE down 1.0%.

The impact of stagflation continues to impact trading around the world. Pressure on the Fed to maintain or even accelerate interest rate increases. US producer prices increased more than expected (11.3% vs street 10.7% and previous 10.8%). Meanwhile the Fed appears to have the political green light to remain hawkish as Treasury Secretary Yellen indicated that getting “unacceptably high” inflation under control is a top priority of the US government and that the administration supports the Fed’s tightening efforts. Investors should note that yesterday, the Bank of Canada accelerated its tightening program with a 1.0% rate hike which was more than the 0.75% increase the street had expected and double the previous meeting’s 0.5% increase.

Secretary Yellen also indicated that a significant driver of high inflation has been energy prices and that the administration is taking steps to manage that through releases from the Strategic Petroleum Reserve and other measures. This week, President is travelling to Saudi Arabia to discuss production levels. WTI and Brent crude oil are down 1.9%-2.1% this morning with WTI falling back under $95.00/bbl. Other commodity action is mixed with natural gas up another 2.5%, copper down 1.8% and platinum down 2.6%.    

Earnings season is off to a rough start. JP Morgan Chase reported profits which were down 28% from a year ago and below expectations ($2.76 vs street $2.88). The bank increased its loan loss provisions, suspended its share buyback program and warned about an uncertain global economic environment. Investment bank Morgan Stanley also reported weaker than expected results ($1.39 vs street $1.53).  

The US Dollar is soaring again today, pushing the Euro down 0.5% back to another test of par. The Canadian Dollar is down 1.3% and USDCAD has broken out over $1.3000 this morning. Gold has dropped under $1,720 and is down 1.5% so far today.

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Colin Cieszynski, Chief Market Strategist

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

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