Daily Markets: Focus on Fighting Inflation Takes Spotlight


Today’s Big Picture

Asia-Pacific equity indexes ended today’s session down across the board. Australia’s ASX All Ordinaries fell 0.28%, Japan’s Nikkei declined 0.37%, China’s Shanghai Composite lost 1.20%, India’s Sensex dropped 1.35% and Taiwan’s TAIEX and Hong Kong’s Hang Seng closed down 2.42% and 2.56%, respectively. South Korea’s KOSPI led the way, down 2.74% on the day. By mid-day trading, European equity indices are down across the board and US futures point to a tough open later this morning.

Following yesterday’s market rally, oil prices are also trading off today amid concerns of China lockdowns, rising recession fears, and growing worries of a hard economic landing. Citigroup now sees the probability of global recession nearing 50% as central bankers boot interest rates to fight inflation while demand weakens. The focus on inflation fighting will be back in the spotlight today as Fed Chair Powell delivers his semi-annual monetary policy testimony before the Senate Banking Committee, and he’s expected to reiterate the Fed’s resolve to tame inflation. Consensus expectations call for the Fed to hike the Fed funds rate by another 75 basis points exiting its July meeting, and the CME FedWatch Tool shows a 59% probability that is followed by a 50-basis point hike following the Fed’s September meeting. With the market fluctuating between inflation fears and recession fears, Powell will once again be walking the high wire. Should he stumble and quash remaining hope for a soft landing in the process, equities could be in for another rough ride as we wait for the July Flash PMI data that will be reported tomorrow.

Data Download

International Economy

Today saw the release of some UK inflation metrics as May YoY CPI and PPI were reported. CPI came in at 9.1%, slightly cooler than expectations of 9.2% but higher than the previously reported 9.0%. PPI at 15.7% was above both expectations of 13.7% and the previously reported 14.7%. May YoY UK Core CPI came in at 5.9% which was lower than both expectations and the previous release and also highlights just how much high fuel prices are impacting consumers.

10:00 am ET will see a preliminary (Flash) release of the Eurozone Consumer Confidence Indicator which is expected to nudge slightly higher to -20.8 from the previous -21.1 release. These figures are not seen (outside of the covid pandemic) since the end of 2012 and the hope is that while a small step, represents the beginning of a journey back to more normal levels.

The Financial Times reports the International Energy Agency has warned that Europe must prepare immediately for the complete severance of Russian gas exports this winter, urging governments to take measures to cut demand and keep aging nuclear power stations open.

Domestic Economy

We have yet another quiet day ahead of us, with the lone economic data point being the latest weekly reading on the MBA Mortgage Applications Index. The index has been under pressure as interest and mortgage rates have risen, crimping demand for new mortgages as housing becomes that much less affordable, but also re-financing activity as well.

Richmond Fed President Tom Barkin shared his view that a risk of a recession is looming as the Federal Reserve tightens monetary policy to bring down inflation, but he argued that based on history a recession likely wouldn’t last long: “We’ve been scarred by our memories of the Great Recession and the Volcker recession, but it’s worth remembering that most other recessions aren’t that long or that deep.”

Reports indicate President Biden could announce a 3-month Federal gas tax holiday, however, any such action would require congressional approval. Indications are Senator Joe Manchin (D-WV) is “a little skeptical” of the gas tax holiday plan asthere’s no guarantee” it would reduce gas prices.

Markets

Stocks rallied across the board yesterday with all 11 of the S&P sectors finishing the day higher. Energy stocks led the advance but recently hit sectors, including Consumer Discretionary and Info Tech, also rebound. That broad rally led the Dow Jones Industrial Average to rise +2.15%, the S&P P500 +2.45%, and the Nasdaq Composite +2.51%. Here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: -15.98%
  • S&P 500: -21.01%
  • Nasdaq Composite: -29.25%
  • Russell 2000: -25.46%
  • Bitcoin (BTC-USD): -56.95%
  • Ether (ETH-USD): -70.39%

Stocks to Watch

Before trading kicks off for US-listed equities, Patterson Companies (PDCO), Winnebago (WGO), and Korn/Ferry (KFY) are expected to report their latest quarterly results.

Chemical and materials company BASF (BASFY) CEO Martin Bruedermueller shared the company will likely face a considerable slowdown during the second half of 2022 as inflation weighs on consumer demand and competitors may rebuild crippled supply chains.

Toyota Motor (TM) announced it is cutting its July global production plan by 50K vehicles due to semiconductor shortages and COVID-19 parts supply disruptions continued. The company now sees its July production as around 800K vehicles.

Axios reported Block (SQ) could be the target of a “well-capitalized suitor” if its market cap keeps shrinking.

Reports suggest Sinclair Broadcast Group (SBGI) will soft-launch Bally Sports+, its new local sports streaming service in five markets as soon as June 23 (tomorrow) in five markets with a full launch later this fall.

CarLotz (LOTZ) announced the closure of 11 dealership stores as part of a strategic review of the business. Cash preservation and future profitable growth were the key determining factors in which stores or hubs were shuttered.

Avnet (AVT) announced the formation of a strategic collaboration agreement with Amazon’s (AMZN) Amazon Web Services focused on helping OEMs of IoT solutions accelerate their time to market.

Autonomous driving truck technology company Inceptio Technology selected Ambarella’s (AMBA) CVflow systems on chip (SoCs) for its automotive-grade central computing platform.

IPOs

Golden Sun Education Group (GSUN) priced its initial public offering of 4.4 million Class A shares at $4 per share. Shares of autonomous system control and related cybersecurity technologies company Mobilicom (MOB) Are expected to begin trading on June 23. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

KB Home (KBH), Steelcase (SCS), and Worthington (WOR) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Thursday, June 23

  • Korea: Producer Price Index – May
  • Japan: Flash Manufacturing PMI – June
  • Eurozone: Flash Manufacturing & Composite PMI – June
  • US: Weekly Initial & Continuing Jobless Claims
  • US: Flash Manufacturing and Composite PMI – June
  • US: Weekly EIA Natural Gas Inventories
  • US: Weekly EIA Crude Oil Inventories

Friday, June 24

  • Japan: Consumer Price Index – May
  • UK: Retail Sales – May
  • Germany: Ifo Business Climate Index, Business Expectations, Current Assessment – June
  • US: New Home Sales – May
  • US: University of Michigan Consumer Sentiment Index (Final) – June

Thought for the Day

“Great achievers are driven, not so much by the pursuit of success, but by the fear of failure.” – Larry Ellison

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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