Morning Minutes

Stock Slide Continues as Investors Weigh Diverging Interest Rate Trends




Continuing on from the weak finish to last week, stock markets around the world are under pressure once again as the new trading week begins. Fears that the Fed could confirm its hawkishness at this week’s Jackson Hole Symposium has the 10-year US treasury note yield climbing toward 3.00% and US index futures falling 1.0% to 1.5%, adding to Friday’s US index declines of 0.9% to 2.0%.

While North American investors fret over the implications of rising interest rates on the economy, Asia Pacific markets have been struggling overnight with the implications of falling interest rates in China as an indicator of a slowing economy and a potentially difficult environment for corporate earnings. After the People’s Bank of China cut its benchmark rate by 5 basis points overnight, Hong Kong fall 0.6%, Sydney slid 1.0% and Tokyo tumbled 0.5%.

Soaring natural gas prices, which are up another 4.6% today with the Nord Stream pipeline closed again for more maintenance, continue to drag on sentiment in Europe. Continental indices like the Dax and CAC are down 2.0% and 1.5% respectively, while the FTSE is down a more modest 0.25%.

In another sign of weakening investor confidence and a potential defensive shift, risk/momentum trading plays have been getting hit hard at the margins once again. Meme/Reddit stocks are getting smashed with AMC down 34.0% premarket (adding to Friday’s 6.6% loss), Bed Bath and Beyond is down 12.5% premarket (adding to Friday’s 40.5% loss) and Gamestop is down 6.7% premarket. Cryptocurrencies are also struggling today with Bitcoin down 1.3% and Ethereum down 3.5%.

It’s a big week for earnings in Canada with most of the Big 5 banks scheduled to report results starting with Bank of Nova Scotia tomorrow. Loan loss provisions in a weakening economy and the impact of market volatility on capital markets results may attract particular attention from investors. Nvidia is the headliner stateside with results dominated by middle-tier and smaller retailers.

In economic news, Canadian New House Price growth continues to fade (7.5% vs previous 7.9%, down from 11.7% in January). Tonight and tomorrow bring flash PMI reports, the first peek at August economic conditions for several countries around the world. Later in the week, US PCE inflation reports (the Fed’s favorite measure), durable goods orders, and more housing numbers are on the way.

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Colin Cieszynski, Chief Market Strategist

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

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