Last Updated 4:00 PM EST
Stock indices finished Wednesday’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 fell 0.32%, 0.66%, and 0.4%, respectively. Furthermore, the U.S. 10-Year Treasury yield increased significantly to 4.13%, an increase of more than 11 basis points. This is the highest level it has seen since 2008. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.55%. The last time the Two-Year yield was this high was back in 2007.
The real estate sector was the session’s laggard, as it fell 2.56%. Conversely, the energy sector was the session’s leader, with a gain of 2.96%. In addition, WTI crude oil remained above $80 per barrel as it hovers around the mid-$85 range.
The Atlanta Federal Reserve updated its latest GDPNow reading, which allows it to estimate GDP growth in real time. The “nowcast” becomes more accurate as more economic data is released throughout the quarter. Currently, it estimates that the economy will expand by about 2.9% in the third quarter.
This is higher than its previous estimate of 2.8%, which can be attributed to recent data released from the U.S. Census Bureau pertaining to housing starts and building permits (see 12:00PM EST update below).
Nevertheless, inflation continues to be a problem around the world. Therefore, it’ll be interesting to see what the actual GDP growth will be and how it’ll change going forward as higher rates start to impact the economy.
Stocks Remain Negative as Global Inflation Accelerates
Last Updated 3:00PM EST
Stocks are in the red heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 1%, and 0.8%, respectively.
Canada released its CPI report for September, which came in at 6.9% on a year-over-year basis. This was slightly higher than the expectations of 6.8% but also slightly lower than the previous report of 7%. However, things get worse from here.
On a month-over-month basis, CPI also came in higher than expected at 0.1%, which was higher than last month’s -0.3%. In addition, when looking at core CPI, which strips out the volatile energy and food prices, inflation rose by 6%. This was higher than August’s reading of 5.8%. In addition, month-over-month core CPI was 0.4% when compared to the 0% from a month ago.
Despite the higher interest rates from the Bank of Canada, it appears that inflation has re-accelerated in September.
This suggests that inflation has broadened out to other parts of the economy and that falling commodity prices have not stopped the upward pressure. Indeed, it appears that inflation won’t stop all at once across all categories, meaning that it might still take a while for CPI to normalize to 2%.
Taking a look across the Atlantic, inflation in Europe is even worse. CPI and core CPI in the UK accelerated to 10.1% and 6.5% on a year-over-year basis, respectively. Similarly, the European Union saw CPI and core CPI of 9.9% and 4.8%, respectively. Once again, another acceleration in both metrics.
As a result, investors shouldn’t get too excited trying to catch a bottom any time soon as inflation is still nowhere near under control. Thus, central banks will be forced to continue raising interest rates, which will equate to continued pressure on stocks.
Stocks are Down as Housing Starts Miss Expectations
Last Updated 12:00PM EST
Equity markets are in the red halfway into today’s trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.1%, 0.4%, and 0.1%, respectively.
The Census Bureau released its U.S. Housing Starts report today, which measures the change in new residential buildings that began construction in the reported month on an annualized basis.
In September, housing starts came in at 1.439 million versus expectations of 1.475 million. To make matters worse, on a month-over-month basis, housing starts fell by 8.1%. This comes after they increased by 13.7% in August, following a 10.9% plunge in July.
On the other hand, U.S. Building Permits beat expectations, with a print of 1.564 million compared to the forecast of 1.53 million. This was a slight increase from the prior month’s report, which came in at 1.542 million, equating to an increase of 1.4% month-over-month. Nonetheless, building permits are on an overall decline which began in March.
These declines are likely to continue as home builder sentiment falls due to higher building and financing costs. Indeed, the U.S. NAHB Housing Market Index, which was released yesterday and measures home builder sentiment, saw a significant drop compared to the prior month.
Stocks and Mortgage Applications Fall as Rates Rise
Last Updated 10:00AM EST
Stocks are in the red after the first 30 minutes of today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.2%, 0.7%, and 0.6%, respectively.
Bond yields are higher to start the day, as the U.S. 10-Year Treasury yield is now hovering around 4.08%. This represents an increase of more than six basis points from the previous close. Similar movements can be seen with the Two-Year yield, which is now at 4.52%.
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate increased to 6.94% compared to last week’s reading of 6.81%.
Due to the higher rates, the number of mortgage applications decreased week-over-week by -4.5%, following last week’s decrease of -2%. This indicates that sentiment in the real estate market is falling, which is consistent with other data that has been released so far.
In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 204.6 compared to 643 on October 20, 2021. Indeed, this is the lowest level since 1997.
Futures Trend Higher as Corporate Earnings-Driven Rally Continues
First Published 5:43AM EST
U.S. stock futures were up in the early hours of Wednesday morning following two straight days of gains fueled by better-than-anticipated corporate earnings.
Futures tied to the Nasdaq 100 (NDX) advanced 0.41% while those on the S&P 500 (SPX) gained 0.22%. Meanwhile, the Dow Jones Industrial Average (DJIA) was up 0.10% as of 5.41 a.m. EST, Wednesday.
On Tuesday, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 were up 1.12%, 1.14%, and 0.77%, respectively.
Investors are keenly watching the earnings of companies across sectors to gauge the impact of inflation and macro challenges. That said, despite recent upbeat earnings, concerns remain that the Fed’s hawkish stance to tame inflation by aggressively raising interest rates might push the economy into a recession.
Shares of Netflix (NFLX), Intuitive Surgical (ISRG), and United Airlines (UAL) surged in Wednesday’s pre-market trading recession in reaction to their third-quarter results. Netflix beat the Street’s expectations, thanks to strong subscriber growth. Intuitive Surgical also came ahead of analysts’ estimates driven by solid growth in procedure volumes. United Airlines reported better-than-expected earnings and assured investors of strong travel demand despite macro fears.
All eyes will be on the Q3 results of electric vehicle pioneer Tesla (TSLA) and tech giant International Business Machines (IBM), with both these companies scheduled to announce their results after the markets close today.
This morning, West Texas Intermediate crude was up by 1.22% as of writing, after declining 3.1% on Tuesday to close at $82.82 on concerns over an economic slowdown and higher U.S. supply.
The Biden administration is expected to announce the release of more oil from the U.S. Strategic Petroleum Reserve. President Biden’s move to release 15 million barrels of oil (the final layer from the 180 million barrels release announced earlier this year) from the reserve to temper prices at the pump comes days ahead of the mid-term elections.
The decision follows the recent announcement by the OPEC+ nations to cut production to support prices and Russia’s threat to further slash supply in response to Western sanctions.
As per the Wall Street Journal, Biden could ask the Energy Department to gear up for additional releases from the nearly 400 million barrels in the reserve if further disruptions are caused by Russia or others.
Coming to key economic releases, investors will be watching September housing starts data scheduled to be released today. The data released last month revealed an unexpected rise in August housing starts despite soaring material prices and rising mortgage rates. The consensus for September stands at 1.47 million.
