4.10pm: US markets close higher after a volatile session
US markets ended a roller coaster session in positive territory but Tuesday’s market rout continued to weigh heavily as investors speculated just how aggressive the Federal Reserve would be with its next rate rise.
At the close the Dow Jones Industrial Average was 30 points higher, or 0.1%, at 31,135, staging a late rally after being 200 points lower.
The S&P 500 gained 13 points, or 0.34%, to 3,946, while the Nasdaq Composite rose 86 points, or 0.74%, to 11,720.
Yesterday’s strong inflation report left questions over whether stocks could go back to their June lows or fall even further.
It also spurred some fears that the Federal Reserve could potentially hike even higher than the 75 basis points markets are pricing in.
“Tuesday’s selloff is a reminder that a sustained rally is likely to require clear evidence that inflation is on a downward trend” Mark Haefele, CIO of UBS Global Wealth Management, said in a note to clients.
12.05pm: Wall Street picks power stocks
US indices rose into green territory at midday, with the energy sector leading the charge helped by higher oil and gas prices.
At midday, the Dow Jones Industrial Average was up by 0.3% to 31,197 points, the S&P 500 was up by 0.4% at 3,948 points, while the Nasdaq Composite was up by 0.7% at 11,718 points.
Michael Hewson, chief market analyst at CMC Markets UK, said the aftershocks of yesterday’s consumer price index numbers have continued to reverberate through financial markets today, but US yields were maintaining their push higher.
“US stock markets have tentatively opened higher, in the wake of yesterday’s rout and their biggest daily decline since 2020, helped by a better-than-expected US producer price index (PPI) number for August which showed a moderation in inflation pressures," Hewson said in a statement. "Headline PPI fell from 9.8% to 8.7%, while core prices fell to 7.3% from 7.6%."
He added: “This is slightly more encouraging in light of the hot CPI number yesterday and suggests that inflation pressures are moderating albeit not as quickly as one would like, with services inflation becoming stickier.”
The major movers included Moderna, up by 6.6%, while energy sector players Coterra and Devon Energy were up by 6.7% and 5% respectively. West Texas Intermediate crude was up by 2.35%, selling at US$89.32 a barrel, and natural gas was up by 5.2%.
On the downside, Nucor (NYSE:NUE) slid more than 9% on news of the steel maker’s disappointing 3Q profit, Oracle fell by 5%, and Netease was down by 2.6%.
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9.35am: PPI data shows ‘disinflation is underway,’ analyst says
US stocks opened slightly lower after the market experienced its worst trading day since June 2020 yesterday sparked by a higher-than-expected CPI reading for August.
Just after the open, the Dow Jones Industrial Average was down 16 points at 31,089 points, the S&P 500 was steady at 3,932 points, and the Nasdaq Composite was down 15 points at 11,618 points.
Meanwhile, the producer price index (PPI) for final demand fell 0.1% in August in line with analyst expectations, according to new data from the US Bureau of Labor Statistics.
Wholesale inflation rose 8.7% for the 12 months ended in August, also matching expectations.
Pantheon Macroeconomics chief economist Ian Shepherdson noted, stepping back from the August details, that the key message from these data is that core PPI inflation is now falling across both goods and services.
“Core goods prices rose at a 6.1% annualized rate in the three months to August, compared to the previous three months, exactly half the peak pace, in the three months to May,” he said. “Core services prices rose at a 3.9% rate in the three months to August, an even bigger slowing from the peak, 10.8% in the three months to March.”
He added that while this data would make no difference to the Fed’s decision next week, it served as a reminder that the CPI numbers are not the only inflation data worth watching.
“The message from this report is that disinflation is underway. It has much further to go,” Shepherdson said.
6.30am: Limited gains?
US stocks were expected to open higher on Wednesday, as some of the disappointment after yesterday’s smaller-than-expected softening in the headline US CPI inflation rate ebbs away.
Still, fears that inflation has yet to respond to the US Federal Reserve’s successive interest rate hikes remain intact and share price gains are expected to be limited.
Futures for the Dow Jones Industrial Average were trading 0.4% higher pre-market, while those for the broader S&P 500 index added 0.5%, and futures for the tech-laden Nasdaq-100 were 0.6% higher.
US CPI data for August, released on Tuesday, proved a huge disappointment as investors had hoped the figures would indicate that price pressures had peaked. The disappointing data led to a slump in share prices, but the worst of the selling may be over going by pre-market activity.
The headline US inflation rate came in at 8.3% in August, lower than the 8.5% recorded in July but still above the 8.1% figure expected. Closer examination of the data also revealed worrying elements with food price inflation jumping higher to 11.4% from 10.9% in July.
“Plus, the core inflation, which doesn’t take into account the volatile food and energy prices accelerated faster than expected to 6.3%, whereas the expectation was a slight rise from 5.9% to 6.1%,” said Ipek Ozkardeskaya senior analyst at Swissquote Bank.
“It’s needless to say that the hope of seeing a dovish pivot regarding the Federal Reserve (Fed) policy is clearly dashed, “ she said, adding that activity in Fed funds futures indicates a 100% chance of a 75- basis point rate hike at the Federal Open Market Committee’s meeting next week and a 34% chance of a 100 basis point increase."
The Federal Reserve has hiked interest rates steadily and aggressively throughout the year. A 75- basis point hike this month, will be the third such increase this year as rate setters seek to tame inflation. The US benchmark rate is seen hitting 4.3% in early 2023.
“And the chatter of a possible rail strike in the US - which would send another supply chain shock throughout the economy - is a fresh factor that could prevent inflation from falling this month, and adds to the hawkish Fed expectations,” Ozkardeskaya said.
Looking ahead, US producer prices, wholesale inflation data, due at 8.30am ET today, will also give a snapshot of price pressures in the pipeline. The headline figure is expected to show a softening to 8.8% in August from 9.9% the previous month.
A sufficiently soft figure could go some way to assuage market fears but will hardly reverse the gloomy mood, noted Ozkardeskaya.
Contact the author at jon.hopkins@proactive.com