4:13pm: "I think a recession is an inevitability," Charles Schwab (NYSE:SCHW) chief investment strategist says
The Dow closed Wednesday down 209 points, 0.7%, at 30,773, the Nasdaq Composite lost 17 points, 0.2%, to 11,248 and the S&P 500 dipped 17 points, 0.5%, to 3,802.
Investors reacted to the consumer price index, which rose 9.1% on a year-over-year basis in June, even higher than May’s 8.6% figure, which was the biggest increase since 1981. This has deepened the sentiment for some that the US is headed for a recession.
“There’s no spinning this, other than the Fed has to get more aggressive near term and crush demand," Charles Schwab Chief Investment Strategist Liz Ann Sonders said, according to CNBC. "That cements a recession now. I think a recession is an inevitability.”
12.05pm: High inflation spurs 100 basis point hike speculation
US stocks pared losses but remained in the red at noon as investor sentiment was weighed down by this morning’s release of red-hot CPI data which showed inflation has not yet peaked in America.
At midday, the Dow Jones Industrial Average had shed 205 points or 0.7% at 30,776 points.
The S&P 500 had dipped 19 points at 3,800 points and the Nasdaq Composite was down 29 points at 11,235 points.
ING chief international economist James Knightley said, with headline inflation at its highest rate since November 1981, the only crumb of comfort was that the June CPI didn’t come in as high as a fake report doing the rounds yesterday which suggested a 10% headline reading.
He said ING continued to expect a 75 basis point interest rate hike from the Fed in July, with 50 basis point moves in September and November, followed by a 25 basis point hike in December taking the Fed funds range to 3.5% to 3.7% by year-end.
“But by delaying their response and now having to move policy faster and deeper into restrictive territory, there is clearly the fear of a recession,” Knightley said. “The Fed has accepted that weaker growth is the price we have to pay to get inflation under control.”
IG senior market analyst Joshua Mahony said the ongoing theme of stock weakness and dollar dominance continued to play out in the wake of the latest US inflation data.
“While markets had expected to see prices increase for June, the actual figure of 9.1% represents a whopping 40-year high that does little to instil confidence that things are about to turn around,” Mahony said.
He said, with headline CPI jumping 1.3% over the course of a month alone, it was no surprise to see market pricing around an oversized 100 basis point rate hike gather traction.
“Ordinarily such a hike would be unheard of, but the Bank of Canada implemented a 100 basis points rate rise of their own [today],” he said. “Higher rates, sharp increases in costs, and lagging wage growth all amount to an environment that will be tough for businesses and consumers alike. Quite how long this period of suffering will last is the million-dollar question that will continue to hold back investment decisions.”
Airline stocks failed to recover at noon following the release of Delta Air Lines (NYSE:DAL) Inc’s 2Q results where the company posted an earnings miss.
Delta had shed about 7%, American Airlines Group (NASDAQ:AAL) Inc 5%, JetBlue Airways (NASDAQ:JBLU) Corporation 4%, and United Airlines Holdings Inc (NASDAQ:UAL) about 2%.
"With elevated fuel costs, lower fares, and declining household disposable income, there is little reason to be bullish airlines as things stand,” Mahony said.
11am: Proactive North America headlines:
Fabled Copper reports on surface sampling at its Bronson property Book 9, 10 copper occurrence
Kontrol Technologies receives National Research Council of Canada funds to accelerate development of wastewater testing technology
HighGold Mining set for a re-rate after expanding the gold resource at its flagship Johnson Tract property in Alaska, says Stifel GMP
Psyched Wellness (CSE:PSYC, OTCQB:PSYCF) gearing up for launch of Amanita Muscaria-derived product Calm in the US later this year
Bridgeline Digital says its TruPresence franchise platform has been chosen to drive revenue for a global auto services provider
VolitionRx (NYSE-A:VNRX) presents data related to its NETs research at ISTH Congress
FSD Pharma (CSE:HUGE, NASDAQ:HUGE) says Lucid Psycheceuticals subsidiary files patent for novel PEA formulations; presents preclinical toxicology results at international symposium
District Metals encouraged after completing five hole drill program at polymetallic Gruvberget property in Sweden
Talon Metals reports promising assay results from Tamarack Nickel-Copper-Cobalt Project in Minnesota
Nevada Silver sets drills turning at Belmont Silver Project targeting geophysical anomalies
GR Silver Mining (TSX-V:GRSL) reports high-grade silver results from San Marcial resource expansion drilling program in Mexico
SPC Nickel hits high-grade nickel equivalent mineralization at its Lockerby East project in Ontario
BTU Metals provides investors an exploration update on its Dixie Halo gold, silver, and copper project in Ontario
Trust Stamp (NASDAQ:IDAI, EURONEXT:AIID) granted Notice of Allowance for US patent on its biometric authentication technology
New Pacific Metals (TSX:NUAG, NYSE:NEWP) reveals first batch of drill results from Carangas silver-gold project in Bolivia
Copper Fox Metals to advance its Van Dyke copper project in Arizona towards preliminary feasibility stage through staged, multi-purpose program
FansUnite Entertainment enters into agreement with Welsh bookmaker Lovell Brothers to launch new online sports betting platform
Hillcrest Energy Technologies demonstrates effencies of its traction inverter
Argentina Lithium & Energy reveals positive lithium results in initial drilling at the Rincon West project in Argentina
Lingo Media chosen as official English language learning partner for Colsubsidio Schools in Colombia
Lumina Gold announces drill results from ten drill holes at Cangrejos project in Ecuador
Tribe Property Technologies to acquire strata property management assets from Martello Property Services
CULT Food Science says portfolio company Opalia achieves multiple cultured dairy milestones
Gevo inks five year sustainable aviation fuel sales deal with IAG subsidiary Aer Lingus
Guardforce AI Co enters warrant exercise transaction
Agra Ventures appoints CEO David Grand as director and chair of company’s board; replacing Elise Coppens
Jushi Holdings says CFO Ed Kremer resigns; president Jon Barack named interim CFO
Royal Helium says Imperial Helium shareholders approve plan of arrangement
9.40am: Inflation data fuels hawkish Fed bets
US stocks opened lower as traders digested June’s CPI data released this morning which showed inflation has not yet peaked in America.
Just after the open, the Dow Jones Industrial Average had shed 304 points or 1% at 30,677 points.
The S&P 500 was down 49 points or 1.3% at 3,770 points, while the Nasdaq Composite was down 199 points or 1.8% at 11,066 points.
Forex.com financial market analyst Fiona Cincotta said the latest inflation data had dashed any hopes the US was passing peak inflation.
“More outsized rate hikes are expected, and the Fed is unlikely to take its foot off the hiking gas anytime soon,” Cincotta said. “The data has fueled hawkish Fed bets boosting the USD while pulling stocks and gold sharply lower.”
Meanwhile, Delta Air Lines (NYSE:DAL) Inc was down about 7% just after the open following the release of its 2Q report, where the company posted an earnings miss but achieved a profit with higher prices compensating for increased costs.
Other airline stocks fell alongside Delta, with American Airlines Group (NASDAQ:AAL) Inc down about 6%, JetBlue Airways (NASDAQ:JBLU) Corporation slipping 4%, and Southwest Airlines (NYSE:LUV) Co and United Airlines Holdings Inc (NASDAQ:UAL) dipping about 3% each.
8.45am: Inflation remains red hot
US stock futures dropped in pre-market trading on Wednesday as the latest US consumer price index (CPI) data showed inflation continued to grow in June, renewing concerns that the Fed will pursue further aggressive interest rate hikes to achieve price stability.
Shortly after the release of the inflation data, futures for the Dow Jones Industrial Average were down 1%, the S&P was down 1.5%, and the Nasdaq Composite had shed 2.2%.
According to the Bureau of Labor Statistics, headline inflation, being the CPI for all items, increased 9.1% before seasonal adjustment over the last 12 months – the largest increase since the period ending November 1981.
The energy index also rose 41.6% over the last year, the largest 12-month increase since the period ending April 1980, and the food index increased 10.4% - the most significant 12-month rise since the period ending February 1981.
The CPI for all urban consumers increased 1.3% in June after rising 1% in May. The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors.
6:30am: CPI to set the tone
US stocks were expected to open little changed ahead of the release of June inflation data, with analysts expecting the topline CPI figure to be in the high eight or nine percent range.
The data, due at 8.30am ET, will be closely watched as it will determine which way the Federal Reserve votes when it meets on 26-27 July, although markets largely expect the Fed to raise the key rate by 75 basis points, its third consecutive interest rate hike.
In addition, the second-quarter reporting season hits full stride on Thursday when JPMorgan Chase & Co (NYSE:JPM) and Morgan Stanley (NYSE:MS) are set to report, followed by Citigroup and Wells Fargo on Friday. Trading is expected to remain choppy.
Futures for the Dow Jones Industrial Average were trading 0.2% higher pre-market, while those for the broader S&P 500 index were up 0.2% and futures for the tech-laden Nasdaq-100 added 0.3%.
“All eyes will be on one data point and one data only, and that is the US CPI number,” said Naeem Aslam, chief market analyst at AvaTrade. “It is highly likely that the report will show consumer inflation sped up to 8.8% year-on-year, which will be the fastest clip since 1981 or in nearly 41 years.” Inflation rose 8.6% in May.
The inflation reading is crucial to determine the outcome of the FOMC meeting later this month, Aslam said. He believes the policymakers will stay aggressive, with a strong number only adding to the odds of a 75 basis point hike.
Swissquote Bank senior analyst Ipek Ozkardeskaya said a few factors hint at a softer-than-expected inflation number, pointing to softening food, energy and commodity prices, easing supply chain challenges and shipping costs, and lower purchasing manager indices.
“(These) hint that US inflation may have hit a peak last month, or will hit one soon,” she said, adding that she too believes the single set of data will not be sufficient to alter the Fed’s view, which means that market volatility will remain high.
OANDA Asia Pacific senior analyst Jeffrey Halley noted the Bank of Korea and the Reserve Bank of New Zealand raised their respective key rates by 0.50% on Wednesday, with a hawkish tone to their statements.
“Rather surprisingly, the Korean Won and New Zealand Dollar are both sharply unchanged, suggesting that the news was already priced in.”
“If US headline inflation remains near 9.0% for June YoY, and the core remains near 6.0% YoY, that will lock and load 0.75% from the FOMC at the end of the month, with potentially larger rate hikes to come, as well as shaking the confidence of the most ardent bottom-fisher in the US equity and bond markets,” he added.
In energy markets, OPEC’s warning that demand will exceed supply by 1 million barrels per day next year provided some cheer, with the WTI crude oil futures 0.7% higher at $96.55 a barrel, and the Brent crude futures up 0.6 % at $100.09.
Contact the author at jon.hopkins@proactiveinvestors.com