Morning Minutes

Indices Retreat Amid Rising Inflation and Interest Rate News




Yesterday’s late day bounce that carried major US indices to gains of 0.6%-0.8% yesterday has faded overnight. This morning finds US index futures down 0.3%-0.5%, while over in Europe, the Dax is down 0.6% and the FTSE is flat on its return to trading.

Interest rates continue to climb ahead of tomorrow’s US Fed interest rate decision. Sweden’s Riksbank announced a surprise 1.00% increase of its benchmark rate to 1.75%, a 0.75% hike had been widely expected. The Peoples Bank of China held its benchmark rate at 3.65%. Traded interest rates continue to rise as well, the US 1-year treasury note yield broke through 4.00% yesterday. The US 2-year treasury note yield has climbed to 3.97%, its highest level since 2007. The 10-year treasury note yield has climbed above 3.50% for the first time since 2011.

Inflation reports from Canada and overseas are mixed today. Canadian consumer prices (7.0% vs street 7.3% and previous 7.6%) were better than expected but remain well above the current Bank of Canada overnight rate. German producer prices came in scorching hot (45.8% vs street 37.5%). Japanese consumer price growth was also more than expected (3.0% vs street 2.6%).  Overall, these reports maintain the pressure on central banks to continue tightening monetary policy.

News related to the economy and corporate earnings are also mixed today. US housing starts were better than expected (1.575M vs street 1.445M). On the other hand, continuing the parade of recent profit warnings Ford Motor Company (F) is down 4.6% in premarket trading after announcing its costs have gone up more than expected this quarter by about $1 billion. Management blamed the increase on rising inflation and also noted that supply chain problems continue to impact its ability to deliver vehicles.

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Colin Cieszynski, Chief Market Strategist

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

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