Morning Minutes

Stocks Struggle As Inflation Pressures and Inventories Build




It’s the last day of the week, month, and quarter and sluggish trading so far this morning suggests that investors may be spending the day adjusting positions and preparing for the start to the new month and quarter next week. After rallying on Wednesday on the Bank of England’s dovish pivot, US indices fell right back down yesterday with the Dow losing 1.5%, the S&P losing 2.1% and the NASDAQ losing 2.8%. This downward momentum faded overnight. Asia Pacific trading was mixed with the Nikkei dropping 1.8% but the Hang Seng climbing 0.3%. This morning, US index futures are up 0.1%-0.2%, and in Europe the FTSE and Dax are also up 0.1%-0.2%.

Treasury yields continue to back away from highs set earlier in the week. The US 10-year treasury note yield is trading near 3.7% after nearly touching 4.0% earlier this week, while the 5-year yield has rolled back under 4.0%. The US Dollar remains strong, gaining 0.6% against the Euro and the Pound, and 0.4% against the Canadian and Australian Dollars so far today while losing 0.2% to Gold. Commodity action is mixed with Natural Gas up 1.8%, but WTI Crude Oil down 1.3% and copper down 0.2%.

In what could potentially be a sign of things to come as confession and earnings seasons approach, Nike shares are down 11.5% in premarket trading. Although the shoemaker beat the street on earnings by a penny, investors were rattled by the news that inventory shot up 65% from a year ago and managements plans for aggressive markdowns this fall to clear it out.

Economic news has been mixed overnight. China’s Manufacturing PMI climbed back up above 50 into expansion territory (50.1 vs street 49.6), but Chinese Service PMI was below expectations (50.6 vs street 52.0). US Chicago PMI is due at 9:45 am today (street 51.8).   

There are also several inflation reports out today. Eurozone inflation accelerated more than expected in September (10.0% vs street 9.7% and previous 9.1%). US Core PCE inflation for August was also worse than expected (4.9% vs street 4.7% and previous 4.6%). The University of Michigan consumer sentiment report is due at 10:00 am today, with the 5-year inflation expectation component (previous 2.8%) likely to capture the attention of both investors and The Fed.   

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Colin Cieszynski, Chief Market Strategist

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

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