First published: 7:30AM EST
Stock indices have finished the week with another selloff in today’s session, as the Dow Jones Industrial Average (DJIA), the S&P 500 (SPX), and the Nasdaq 100 (NDX) fell 0.45%, 0.72%, and 0.55%, respectively.
The energy sector (XLE) was the session’s laggard, as it fell by 2.65%. Conversely, the consumer staples sector (XLP) was the session’s leader, with a gain of 0.22%. In addition, WTI crude oil is up 0.18%, reaching $85.27 per barrel.
Furthermore, the U.S. 10-Year Treasury yield remained relatively flat at 3.45%. Similarly, the Two-Year Treasury yield was also flat, as it hovers around 3.87%. This brings the spread between them to -42 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 lower Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4% to 4.25% increased to 41.2%, which is up from yesterday’s expectations of 35.9%. In addition, the market is now also assigning a 40% probability to a range of 4.25% to 4.5%. For reference, investors had assigned a 46.3% chance Thursday.
On Friday, the University of Michigan released its preliminary results on consumer inflation expectations over the next five years. Consumers now expect inflation to be 2.8%. This number has pulled back from its June high of 3.3%. It’ll be interesting to see how these results will change going forward, given the recent hotter-than-expected CPI report.
In addition, the Consumer Sentiment report from the University of Michigan indicated that sentiment ticked up to 59.5 in September compared to the previous month’s reading of 58.2. However, the figure fell short of the consensus estimate of 60.
Eurozone Inflation Continues to Accelerate
On Friday, 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 9.1% on a year-over-year basis.
This marks yet another acceleration in the Eurozone inflation rate, which was 8.9% last month. Indeed, the CPI growth rate has been increasing consistently since February 2021.
In addition, when looking at core CPI, which strips out the volatile energy and food prices, inflation rose by 4.3% year-over-year. This was also an increase from the previous reading of 4%.
Furthermore, there doesn’t appear to be any positive signs in sight for Europe. On a month-over-month basis, CPI increased by 0.6%, significantly higher than the previous 0.1%. Furthermore, month-over-month core CPI grew by 0.5%. This compares to a 0.2% decline in July.
It’s clear that inflation is broad and continuing to get worse. As winter time approaches, the cost of energy is likely to increase significantly in Europe now that Russia has cut off natural gas flows to the continent. This will heavily impact economic growth in Europe, which will certainly cause ripple effects in North American markets.
Supply-Chain Issues Torment FedEx, GE
Shares of FedEx plummeted Friday after the logistics major warned of a significant sales shortfall, the shuttering of its 90 FedEx and five corporate offices, a hiring freeze, and a slew of other cost control measures.
The company also withdrew its full-year guidance on the back of the significantly worsened macroeconomic trends, especially the weak global shipment volumes.
The update was a wake-up call that makes us aware of the magnitude of supply-chain problems that have put major industries and businesses across the world under pressure.
Indeed, FedEx wasn’t alone as General Electric (NYSE:GE) fell 3.66% on supply chain worries as well, adding to the jitters induced by FedEx. However, a sign of relief on the supply-chain front came in the form of a U.S. railroad strike that was averted.
