Morning Minutes

Stocks Slip as Interest Rate Hike Chatter Resumes




Stock markets appear to be backsliding a bit this morning after climbing on Monday. US index futures are all down about 0.2%, while in Europe, the CAC is down 1.5% and the Dax is down 0.3% while the FTSE is flat. Commodity action finds WTI and Brent crude oil both up about 0.75%, natural gas up 3.6% and copper up 0.3%.

The 10-year treasury note yield has turned back upward this week and has started to approach 2.50% once again, an upturn that appears to be supported by persistently high commodity prices and positive economic news. Overnight, service PMI reports have been coming out from Europe, Asia and Australia, most of which have beaten street expectations and indicating an expanding world economy. The US ISM Service PMI report is due at 10:00 am with the street expecting readings of 58.0 for the headline number and 83.3 for the prices paid component.

High inflation and an expanding economy has renewed talk about potential interest rate hikes from central banks. Although Australia’s central bank kept its benchmark rate low overnight, the Bank of Canada meets next week and there has been speculation in the Canadian media this week about the potential for a 0.5% rate hike this month. New Zealand’s central bank, who has raised rates several times in the last year, meets next week as well.

Meanwhile, signs of improving investor confidence and increasing appetite for risk continue to emerge at the margins. In yesterday’s Morning Minutes we noted that trading action in Twitter on the news of Elon Musk taking on a 9.2% stake could be an indicator of investor willingness to trade. After being up about 20% in premarket action yesterday, Twitter was able to sustain and build on its early gains through the day to finish up 27.1% and upward momentum has continued overnight with the shares up another 5.2% in premarket action so far today on reports that Musk may be added to Twitter’s Board of Directors.

Meanwhile, the NASDAQ had a positive day yesterday with a 1.9% gain, compared with a 0.8% rise for the S&P 500. In another sign of capital leaving defensive havens and returning to risk markets, cryptocurrencies are climbing, with Bitcoin up 2.2% and gold flat.

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Colin Cieszynski, Chief Market Strategist

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

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