Morning Minutes

US Inflation Jump Puts Pressure On Some Stocks



Today’s US inflation report has sparked a selloff in US indices in premarket trading. Headline consumer prices jumped more than expected (4.2% vs street 3.6% and previous 2.6%), sending NASDAQ futures to a 1.3% loss. On the other hand, the impact on Dow Futures, which are down 0.6%, has been smaller. The US 10-year treasury note yield is up only slightly to 1.65%, and the US Dollar Index has bounced back 0.4%.

The main question coming out of this for investors is whether inflation pressures have increased enough to convince the Fed to abandon its dovish stance on monetary policy. Although headline inflation was surprisingly high, recent comments from FOMC members have suggested they are willing to let inflation run a bit to offset the impact of last years depressed prices on its long-term inflation target. Adding to the possibility that this may be a short term bounce up off of unusually depressed comparable commodity prices from a year ago, the supposedly less volatile core inflation (excluding food and energy), number surprised to the upside but not by as much (3.0% vs street 2.3% and previous 1.6%).

Today’s US action continues a see-saw battle between the two big indices playing out this week that saw the NASDAQ underperform on Monday then the Dow underperform on Tuesday. Overseas, Asia Pacific markets are also flipping back and forth, particularly Hong Kong, which rose 0.8% and Sydney which fell 0.7% overnight, reversing their relative performance from the day before. Tokyo remained under pressure, falling another 1.6%. Major European indices, on the other hand, are flat to slightly higher with the FTSE up 0.6% and the Dax up 0.3%.

In commodity action, copper has paused its advance, holding steady near $4.75/lb. Energy contracts are bouncing back from a one-day correction with WTI crude oil up 1.3% and gasoline up 0.5%. Difficulties in getting the Colonial Pipeline back up and running, leading to long lines at the pumps in several states continues to dominate US business news, but copper’s resilience indicates that many investors remain focused on the potential for a broader world economic reopening to boost resource demand.

Earnings season continues to wind down. Last night’s main event in the US was Electronic Arts posting strong results ($1.23 vs street $1.05).  In Canada, TMX Group announced a 10% dividend increase as trading volumes and financing dollars jumped 50% and 122% respectively from a year ago in Q1.   

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Colin Cieszynski, Chief Market Strategist

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

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