Stocks Sell Off in Thursday’s Session Ahead of Friday’s Inflation Report
Last Updated 4:15PM EST
Stocks finished Thursday’s trading session in negative territory as investors await Friday’s key inflation report. It’s likely that investors wanted to take some risk off the table in the event of a higher-than-expected print.
Indeed, the European Central Bank increased its inflation forecast for Europe. Thus, investors could potentially be preparing for something similar to happen in North America.
As a result of the expected increase in Eurozone inflation, the ECB intends to hike rates by 0.25 basis points in July and September. However, investors need to consider that Europe is being impacted more than North America by rising fuel and food prices due to its proximity to Ukraine and Russia.
Therefore, it is likely to be more sensitive to rising interest rates, meaning that it could easily slip into recession. Such a scenario would cause a ripple effect that would also impact North America.
As a result, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 finished down 1.94%, 2.38%, and 2.74%, respectively.
All sectors declined today, with the communications sector (XLC) being the worst performer, as it fell 3.09%. In addition, the consumer staples sector gave up all its gains from earlier in the session to finish down 1.5%. Nonetheless, it was today’s outperformer.
Average Gasoline Prices Approach $5 per Gallon
Last Updated 3:00PM EST
Stock indices are negative, heading into the final hour of Thursday’s trading session. As of 3:00 p.m. EST, The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 declined 0.8%, 1.1%, and 1.4%, respectively.
Furthermore, WTI crude oil is slightly down on the day, as it trades in the mid $121 range. This comes after news of renewed lockdowns in the Chinese city of Shanghai, as it continues to implement its zero-COVID policy. It is possible that the lockdown could help ease pressures on oil prices.
Nevertheless, the price of gasoline continues to increase, with the average price approaching $5 per gallon in the U.S. Currently, the average is $4.97 per gallon compared to $3.07 per gallon last year.
The highest gasoline prices can be found in California, where the current average is $6.40. Alternatively, the state of Georgia has the lowest average, with a price of $4.41.
With oil supply still an issue, it’s likely that the lockdowns in Shanghai won’t have a material impact on the upward trajectory of oil prices. As a result, an economic slowdown is likely to occur as consumers are forced to allocate more of their budgets to the essentials.
Initial Jobless Claims Spike, but Continuing Jobless Claims Continue to Trend Lower
Last Updated 12:00PM EST
Equities are red halfway into Thursday’s trading session. As of 12:00 p.m. EST, The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 declined 0.34%, 0.42%, and 0.31%, respectively.
The consumer discretionary sector (XLY) is the leader so far, as it is up 0.21%. Alternatively, the energy sector is the laggard, with a 0.98% decline.
Furthermore, crude oil is slightly down to $121.80 per barrel, while the U.S. 10-year Treasury yield continues to hover above 3%.
On Thursday, the Department of Labor released its Initial Jobless Claims report, which came in worse than expected. In the past week, 229,000 people filed for unemployment insurance for the first time. Expectations were for 210,000 individuals.
Also important, Continuing Jobless Claims, which measures the number of unemployed people who qualify for unemployment insurance, also came in slightly higher than expected, at 1.306 million versus the estimate of 1.305 million.
Nevertheless, Continuing Jobless Claims are trending down and are currently sitting near their lowest levels since 1970. This suggests that more individuals are finding work than those who are filing for the first time.
It will be interesting to see if this trend continues as interest rates rise while economic growth continues to slow down.
The European Central Bank Cuts Its Economic Forecast
Last Updated 10:00AM EST
Stock indices were slightly up after the first 30 minutes of trading. As of 10:00 a.m. EST, The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 were up 0.16%, 0.06%, and 0.18%, respectively.
The consumer staples sector (XLP) is the leader so far, as it is up 0.8%. Alternatively, the energy sector (XLE) is the laggard, with a 0.64% decline.
Furthermore, crude oil is slightly down to $121.67 per barrel, while the U.S. 10-year Treasury yield continues to hover above 3%.
In addition, after both the World Bank and the Organization for Economic Development cut their global economic growth forecasts, the European Central Bank joined the party by cutting its own projections for Europe.
Indeed, the European Central Bank now expects growth of 2.8% in 2022 and 2.1% in 2023, compared to the previous forecast of 3.7% in 2022 and 2.8% in 2023. On the bright side, it raised its 2024 forecast to 2.1% from 1.6%.
However, it also raised its inflation projections from 5.1% to 6.8% for 2022, followed by increases to 3.5% from 2.1% in 2023, and to 2.1% from 1.9% in 2024. This forecast appears to echo the World Bank’s stagflation warning from Tuesday and highlights just how quickly economic conditions can change.
Pre-Market Update
Stock futures were up early Thursday morning as investor sentiments were boosted on signs of China’s crackdown on tech companies easing slightly.
Futures on the Dow Jones Industrial Average (DJIA) were up 0.53%, while those on the S&P 500 (SPX) inched 0.6% higher, as of 7:03 a.m. EST, Thursday. Meanwhile, the Nasdaq 100 (NDX) futures rose 0.68%.
Bloomberg reported a few minutes ago that China may give a green signal to the Ant Group IPO, leading Alibaba’s (BABA) shares to spike more than 14%.
While we remain on the topic of China, the U.S. government is working on easing import tariffs that had been imposed during the Trump administration, a move that can bring down the prices and help soothe inflation.
At the end of the regular trading hours Wednesday, the Dow fell 0.81% led by Intel’s (INTC) decline, the S&P 500 dropped 1.08% dragged down by the real estate sector, and the Nasdaq-100 declined 0.76%, as investors struggled to time the market amid growing uncertainty ahead of May’s CPI data due to be released on Friday.
Interestingly, May’s inflation is widely expected to be slightly lower than April, possibly indicating that the economy has reached the peak of inflation.
Nonetheless, earlier this week, the World Bank trimmed its outlook on global growth for 2022. The group said that it expects inflation to remain high this year, above 2%, due to the Russia-Ukraine unrest. This situation brought back the memory of the stagflation of 1970, an economic phenomenon where inflation is met with a slowdown in growth and demand, catalyzed by the lower purchasing power of consumers.
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