Morning Minutes

Stagflation Concerns and Hong Kong Breakdown Drag on Markets




Recent economic numbers pointing toward a period of stagflation (low economic growth and high inflation) and seasonal factors not only continue to drag on world markets but may have reached a tipping point overnight.

The Hang Seng sold off again overnight, falling another 1.5%, taking out recent lows and breaking down below 25,000 for the first time since last November. Several major national indices have been trending sideways to slightly positive since March, but this is the first time where significant established support has failed, an ominous sign. Shanghai and Tokyo fell in tandem with Hong Kong overnight, falling 1.3% and 0.6% respectively.

Worsening sentiment toward China’s economy following weak retail sales and industrial production reports issued earlier this week also dragged on copper, which is down nearly 2.00% today. Meanwhile, energy contracts are also falling back now that Hurricanes Ida and Nicholas have moved on and focus turns to rebuilding and reopening production. Natural gas is down nearly 3.5%, while WTI crude oil is down 0.6%.

Growing and higher than expected inflation pressures in Canada combined with stubbornly high inflation in the US continues to pressure central banks to cut back on monetary stimulus, particularly the Fed who meets next week. The US 10-year treasury note yield and the US Dollar have been creeping higher overnight sending gold done 1.4% and the Euro down 0.4%.

US index futures are currently flat to down 0.4%, on mixed economic numbers south of the border. US retail sales staged a surprisingly strong rebound (+0.7% vs street -0.8% and previous -1.1%). US weekly initial jobless claims were slightly worse than expected (332K vs street 328K and previous 312K). Canadian housing starts for August were also soft (260K vs previous 270K).

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Colin Cieszynski, Chief Market Strategist

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

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