Stocks Finish Tuesday’s Session in the Green
Last Updated 4:15PM EST
Stock indices finished Tuesday’s trading session in positive territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 increased 2.42%, 2.75%, and 3.13%, respectively.
The utilities (XLU) sector was the session’s laggard, as it increased 0.63%. Conversely, the communications (XLC) sector was the session’s leader, with a gain of 3.57%. In addition, WTI crude oil gained 2%, reaching just over $104 per barrel. It is currently near the session high of $104.44 per barrel.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.02%, a gain of three basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 3.23%. This brings the spread between them to -21 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 3.75% to 4% increased to 26.4%, which is up from last yesterday’s expectations of 20.6%. In addition, the market is now also assigning a 6.1% probability to a range of 4% to 4.25%. For reference, investors had assigned a 3.8% chance yesterday.
However, the Federal Reserve isn’t the only central bank that investors are expecting to increase rates faster than initially anticipated. The Eurozone’s high inflation report could possibly force the European Central Bank to increase rates faster. As a result, the Euro to U.S. Dollar exchange rate increased to 1.0225 in anticipation of this possible scenario.
Eurozone Inflation Continues to Accelerate
Last Updated 3:00PM EST
Stocks are positive 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 up 2.1%, 2.5%, and 2.8%, respectively.
On Tuesday, Eurostat released its finalized report for Eurozone inflation. The Eurozone Consumer Price Index (CPI), which measures the change in the price of goods and services from a consumer’s perspective, came in as expected, at 8.6% on a year-over-year basis.
This marks yet another acceleration in the Eurozone inflation rate. Indeed, the CPI growth rate has been increasing consistently since February 2021. The increase can be attributed to energy and food prices, which continue to be impacted by the war in Ukraine.
However, when stripping out energy and food prices, Core CPI was 3.7% on a year-over-year basis. This was a slight decline in growth compared to the previous print of 3.8%, which is the current peak. Nevertheless, 3.7% is still considerably high, as it is the Eurozone’s second-highest increase since the European Union was formed.
This will increase the pressure put on the European Central Bank to raise interest rates to combat inflation. However, raising rates too high would cause a ripple effect in global markets that would impact North American equities as well.
Housing Starts Come in Lower than Expected; Building Permits Beat Expectations
Last Updated 12:00PM EST
Equity markets are firmly in the green halfway into the trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 1.7%, 2%, and 2.3%, respectively.
On Tuesday, the Census Bureau released its U.S. Housing Starts report, which measures the change in new residential buildings that began construction in the reported month on an annualized basis.
In June, housing starts came in at 1.559 million versus expectations of 1.580 million. To make matters worse, on a month-over-month basis, housing starts fell by 2%. This was in addition to last month’s decline of 11.9%.
On the other hand, U.S. Building Permits beat expectations, with a print of 1.685 million compared to the forecast of 1.650 million. Nevertheless, this was a slight decline from the prior month’s report, which came in at 1.695 million, equating to a decline of approximately 0.6% month-over-month.
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 are in the Green to Start Tuesday’s Trading Session
Last Updated 10:00AM EST
Stocks are positive 30 minutes into Tuesday’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.9%, 1.2%, and 1.3%, respectively.
The consumer staples sector (XLP) is the laggard so far, as it is up 0.7%. Conversely, the industrials sector (XLI) is the session’s leader, with a gain of 1.6%.
WTI crude oil is still over $100 per barrel due to tight oil supplies that will continue to persist as OPEC nations remain hesitant to boost oil production. Currently, the price is hovering around the mid-$101 per barrel range, which equates to a slight decrease of 0.5% from the previous close.
Meanwhile, bond yields are slightly lower as the U.S. 10-Year Treasury yield is now hovering around 2.98%. This represents a decrease of less than one basis point from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 3.16%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -18 basis points.
Pre-Market Update
Stock futures are indicating markets will open higher today after yesterday’s lackluster close.
Futures on the Dow Jones Industrial Average (DJIA) are up 0.14%, while those on the S&P 500 (SPX) are up 0.31% as of 2.40 a.m. EST on Tuesday. NASDAQ 100 (NDX) futures are also up 0.51%. The Dow had slid 0.69% at the end of trade on Monday, while the S&P 500 and Nasdaq 100 had dropped 0.84% and 0.81%, respectively.
Across the globe, Shanghai is up 0.13% while the Global Dow is up 0.19%. In the crypto space, Bitcoin (BTC-USD) and Ethereum (ETH-USD) are indicating conflicting trends. Bitcoin is down 2.6% while Ethereum is up 3.36%.
Meanwhile, IBM (IBM) shares dropped 4.36% during the extended trading session on Monday as cash flow concerns overshadowed its Q2 numbers. Defense behemoth Lockheed Martin (LMT) is scheduled to deliver Q2 numbers today and has bagged a $30 billion contract from the Pentagon for about 375 F-35 fighters.
As the Fed’s next meeting later this month draws closer, Jefferies thinks the central bank is in a favorable place. While Federal Open Market Committee (FOMC) members have maintained a hawkish tone, the markets are already factoring in a 0.75% rate hike on July 27.
In a major development, Chinese holdings of U.S. debt have dropped below the $1 trillion mark for the first time in more than a decade, a sign that rising rates are making treasuries less attractive.
In the meantime, the U.S. Dollar Index is at 107.20, a drop of 0.15% but still up 12.36% so far in 2022.
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