Morning Minutes

Stocks Keep Climbing As Taper Talk Continues




Building on yesterday’s gains of 1.0% for the three main US indices, US index futures are all up about 0.6% as investors continue to respond favorably to yesterday’s news from the Fed. The US central bank delivered an upbeat assessment on its economy indicating that conditions have improved enough for tapering to begin soon. In the press conference, Fed Chair Powell suggested that the current asset purchase program could be wound down by the middle of 2022. Fed member projections suggested the central bankers still see inflation as transitory, expecting a CPI increase of 3.7% this year, falling to 2.3% next year. FOMC members also moved up their timetable for the first interest rate hike to sometime in 2022 from 2023.

Chair Powell also downplayed the risk of contagion coming out of Evergrande’s financial troubles. Evergrande’s shares bounced 17.6% off a low base overnight after it reached a deal with domestic bondholders, but the status of an interest payment due international bondholders remains unclear. With fears of a widescale financial crackup easing, the Hang Seng rallied 1.1% overnight while Sydney bounced 1.00%. That being said, it’s unclear whether authorities are more interested in keeping Evergrande going or in managing the fallout from a possible bankruptcy, so the road ahead could still be bumpy.

The Bank of England, meanwhile, voted 7-2 to maintain their current asset purchase target, but the two hawkish dissenters calling for tapering were not expected by investors. The British Pound is rallying on the news, gaining 0.6% against the US Dollar this morning. Flash PMI reports for Europe are out this morning with most numbers landing in the mid-50s, indicating a continuing moderate expansion, but coming in below street estimates. The Dax is up 0.7% today while the FTSE is flat.  

Canada retail sales fell by 0.6% in July, far short of the 4.4% increase the street had expected. US weekly initial jobless claims of 351K were worse than the 320K street estimate. US flash PMI numbers for Manufacturing (street 62.5 vs previous 61.1) and Services (street 59.5 vs previous 55.1) are due at 9:45 am EDT.

Blackberry is up 7.2% in premarket action today after beating the street on sales ($175M vs street $164M), with a -$0.06 loss per share a penny better than expected.

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Colin Cieszynski, Chief Market Strategist

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

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