Morning Minutes

Stocks Backtrack as Pivot Effect Fades Fast and Inflation Keeps Rising




In a case of “Be careful what you wish for, you might just get it”, investors who spent the summer hoping the Fed and other major central banks would pivot from being hawkish and fighting inflation to being dovish and supporting the market/economy, yesterday’s bullish reaction to the Bank of England’s dovish pivot ran out of gas overnight. As time has progressed, thinking seems to have quickly shifted from celebrating new liquidity to questions of why this sudden shift was needed and concern that stresses in the global economy and the unwinding of previous easy money policies may now be causing stresses in the financial system. 

The celebration and apparent short squeeze quickly ended after North American markets closed with gains of 1.9%-2.0% for the major US indices. Asia Pacific trading was mixed with the Nikkei climbing 1.0% and the Hang Seng falling 0.5%. Trading in Europe finds the Dax down 1.2% and the FTSE up 1.0%. US index futures are down 0.7% to 1.1% today with the NASDAQ leading the way back downward.

Treasury yields are on the rise again this morning, sending bond prices downward. A 10-year note auction in Italy today saw a significant jump in the yield investors are demanding (4.70% vs previous 3.76%). The US Dollar continues to climb today, gaining 0.6% against Gold, plus the Canadian and Australian Dollars, 0.4% against the Pound and 0.2% against the Euro. Commodity action is mixed with Copper up 1.6%, WTI Crude Oil up 0.2%, and natural gas down 0.6%.

Today’s economic news, meanwhile, reminds investors the world continues to struggle with high inflation. Germany reported that its consumer price index accelerated even faster than feared this month from a year ago (10.0% vs street 9.4% ad previous 7.9%). US Q2 Core PCE inflation was revised sharply upward as well (5.6% vs street/previous 4.4%).  Meanwhile, Canadian monthly GDP was slightly better than expected (+0.1% vs street -0.1%), and US jobless claims were a lot better than expected, dropping back under 200K for the first time since April (193K vs street 215K).

SIA Wealth In The Media:

Chief Market Strategist Colin Cieszynski appeared on BNN Bloomberg today where he spoke to the impact of recent US Dollar strength on currency markets and the outlook for corporate earnings. He also discussed tactical investing, relative strength and SIA Wealth Management’s recent return to 0% equity exposure.

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Colin Cieszynski, Chief Market Strategist

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

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