Key Market Insights September 15

9 min read

US Markets

Stock futures were up slightly overnight after the worst trading day in the United States in over two years.

  • Stocks fell after the Consumer Price Index rose 0.1% from July to August despite gas prices declining.
  • Every stock in the Dow Jones and every sector of the S&P 500 fell on the day.
  • Communication services stocks were the most impacted as the sector fell by 5.6%.
  • Technology stocks also saw significant losses, with Netflix down 7.8% and Meta falling 9.4%.
  • The current 10 Year US Treasury yield is set at 3.42260%
Market Price Move
Dow Jones 31,104.97 -3.94%
S&P 500 3,932.69 -4.32%
Nasdaq 11,633.57 -5.16%
Russell 2000 1,831.57 -3.91%

 

Market Insight

At first glance, many have been caught off-guard by the significant reaction by investors to the 0.1% increase in the Consumer Price Index from July to August. The headline numbers, however, fail to tell the entire story. For over a year, the Federal Reserve, the Biden Administration, and other policymakers and economists have been claiming that inflation is due solely to external factors such as rising fuel costs and supply disruptions caused by COVID-19 and the war in Ukraine. While investors doubted this theory throughout much of the spring and summer, the decline in inflation recorded in July caused a surge in markets as investors bought into the idea that a drop in COVID-19 cases, slightly higher interest rates, and a decrease in fuel prices would end runaway inflation. The figures released on Tuesday show that the inflation problem is not superficial or caused by a few factors but is instead deep-rooted and could indicate structural issues in the economy.

  • Core inflation, which excludes food and energy prices, was up 0.6% from July to August. It is up 6.3% yearly, not much less than the 8.3% inflation if you include food and energy prices.
  • Gasoline was down 10.6% from July to August, but services like medical care rose 0.8%, and veterinary services rose 0.9% (and is up more than 10% year over year).
  • Food prices also increased despite the decline in gas. The food-at-home inflation index, which is a proxy for grocery prices, is up 13.5% year over year, which is the largest 12-month rise since March 1979.
  • As car prices jumped 0.8% and housing costs increased 0.7% month over month, it is becoming clear that inflation is deep-rooted in the U.S. economy and not caused by external factors.

 

Canadian Markets

Prime Minister Justin Trudeau announced a new set of measures to improve affordability across the country as high inflation has caused a rise in household debt and living costs.

  • The government will be doubling the sales tax rebate already given to low-income taxpayers for the next six months. This measure will cost the federal government $2.5B.
  • Trudeau also announced a national dental care plan to be added to Canada’s existing universal healthcare system. The plan will be phased in, and by 2025 everyone with an income of under $90,000 will have dental coverage.
  • The government has put aside another $700B to support low-income renters. This is in addition to $475M that was set aside for this subsidy program earlier this year.
Market Price Move
TSX 19,645.40 -1.71%

 

European Markets

Stocks in Europe were down on Tuesday after they fell significantly in the afternoon, following the release of U.S. CPI data.

  • The Stoxx 600 was up 0.5% before the data was released but finished the day down 1.5%.
  • Retail stocks and technology stocks dragged down markets as they both lost 3.2% on the day.
  • Bridgepoint Group fell 8.2%, erasing most of the 9% gains it saw on Monday as the British private equity firm announced the details of its partnership with MiQ.
Market Price Move
Euro STOXX 50 3,586.18 -1.65%
UK (FTSE 100) 7,385.86 -1.17%
Germany (DAX) 13,188.95 -1.59%
France (CAC 40) 6,245.69 -1.39%

 

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Asian Markets

Markets in Asia opened lower on Wednesday after a negative trading session in Europe and the U.S. on Tuesday.

  • In the first hour of trading on Wednesday (Tuesday movements below), the Nikkei fell 2.8%, Kospi dropped 2.58%, and the Australian ASX lost 2.47%.
  • The U.S. treasury yield also hit a 15-year high, negatively impacting Asian currencies and trade.
  • Stocks in mainland China and Hong Kong were also down to start trading, although that was also a continuation of negative momentum in the country from Tuesday as the Chinese economy continues to struggle to grow.
Market Price Move
S&P Asia 50 4,367.53 -0.37%
Japan (Nikkei 225) 28,614.63 0.25%
South Korea (KOSPI) 2,449.54 2.74%
China (Hang Seng) 19,326.86 -0.18%
India (SENSEX) 60,571.08 0.76%

 

Commodities

Commodities fell significantly on Tuesday following the release of the U.S. inflation data.

  • There was significant downward pressure amid concerns about the health of the U.S. economy and reports of more COVID-19 outbreaks in China, which could impact economic growth in the country.
  • The U.S. Strategic Petroleum Reserve is at its lowest level since 1984, with only 434.1 million barrels after its stocks fell by 8.4 million barrels last week.
  • Oil prices were down, with Brent crude falling 0.88% and U.S. West Texas Intermediate crude down 0.5%.
Market Price Move
Oil (NYSEARCA:OIL) 31.03 -0.61%
Gold (NYSEARCA:GLD) 158.54 -1.30%
Silver (NYSEARCA:SLV) 17.83 -1.87%
Corn (NYSEARCA:CORN) 27.57 -0.11%
Lumber (NASDAQ:WOOD) 74.42 -3.40%

 

Currency Exchange Rates

The U.S. Dollar was down early in the day before making significant gains following the release of the CPI data.

  • The U.S. Dollar Index gained 1.42% on Tuesday to finish at 109.87.
  • The odds of a 1 percentage point interest rate hike increased from 0% at the start of Tuesday to 33% at the end of the day.
  • The stronger U.S. Dollar led to a decline in almost all commodity prices because it makes commodities more expensive for non-U.S. buyers.
Market Price Move
UK(GBP) £0.87 0.99%
Europe (EURO) €1.00 0.92%
Canada (Canadian Dollar) $1.32 1.12%
Japan (Yen) ¥144.57 1.38%

 

Good trading,
Chris Svorcik

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