Morning Minutes

Interest Rates and US Dollar Soar, Stocks Keep Sliding Into the Weekend




Continuing yesterday’s downturn, world stock markets have been in broad retreat overnight and into this morning. In Asia Pacific trading, the Nikkei and Hang Seng both fell about 0.4%. In Europe today, the CAC is down 2.1%, the Dax is down 1.4% and the FTSE is down 0.9%. US index futures are 0.6%-1.0% adding to yesterday’s US index declines of 0.3%-0.6%.

Stocks, bonds and currencies continue to be impacted by hawkish comments from Philadelphia Fed President Harker who indicated that he has seen little progress on inflation and that he expects the Fed to continue aggressively increasing interest rates into next year, suggesting Fed Funds could go above 4.00% by the end of 2022 (from 3.00%-3.25% now) and then keep rates at a higher level for an extended period of time.

Harker’s hawkish comments have propelled the US 10-year treasury yield up above 4.25% to trade at its highest level since 2008. The 10-year German bund yield has climbed up to 2.50% heading into next week’s European Central Bank meeting. Rising treasury yields have ignited another US Dollar rally, sending USDJPY up above 150 for the first time since 1990. The British Pound is down 1.1% against the greenback today amid continuing political and economic turmoil in the UK. Gold is down 0.6% while the Euro and the Canadian Dollar are both down about 0.4%. Commodities are mixed today with WTI crude oil up 0.6% but Copper down 1.0% and Natural Gas down another 4.4%.  

Earnings results were mixed overnight. Social media platform Snap is down 28.1% premarket after the company refused to issue guidance for the current quarter beyond indicating that revenue growth slowed to under 10% last quarter and that momentum is expected to keep slowing this quarter. Appliance producer Whirlpool ($4.49 vs street $5.35) missed on earnings and indicated it is cutting production due to weakening demand. On the other hand, American Express ($2.47 vs street $2.40) and Schlumberger ($0.63 vs street $0.55) beat expectations.

The most recent economic numbers have been mixed as well. Retail sales numbers came in better than expected in Canada (0.7% over month vs street 0.2% and previous -2.2%). UK retail sales, however, fell off even worse than feared (-6.9% vs street -5.0% and previous -5.6%), and Canadian new house prices continued to weaken (6.3% vs previous 6.9%).

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Colin Cieszynski, Chief Market Strategist

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

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