Inflation Continues to Accelerate Globally
Last Updated 4:30PM EST
Stocks finished Wednesday’s trading session in the green. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 0.15%, 0.59%, and 1.55%, respectively.
Investors may be anticipating that earnings results won’t be as bad as initially feared. Indeed, Tesla’s (TSLA) earnings results beat expectations, as adjusted EPS came in at $2.27 versus the $1.83 expected.
However, the rally should not make investors forget that inflation continues to plague countries across the globe. Yesterday, Eurozone inflation came in hot as it once again accelerated, reaching a level of 8.6% year-over-year. Just today, the United Kingdom released its CPI report, which came in at 9.4%, higher than the 9.3% that was expected.
In addition, Canada also released its CPI report. Unlike the United Kingdom, inflation was lower than expected at 8.1% versus the forecast of 8.4%. Nevertheless, all three reports showed that inflation continues to get worse as all three prints were the highest we’ve seen so far on a year-over-year basis.
However, Canada saw its month-over-month CPI increase by 0.7%, half of the 1.4% from the previous report. Regardless, this is still considered very high. Moreover, the United Kingdom saw an increase of 0.8% month-over-month, a slight increase from the 0.7% in May.
Therefore, although investors have been feeling more optimistic lately as a result of the recent rally, it’s important not to forget that most of the macroeconomic headwinds have not disappeared. In fact, they appear to be getting worse.
U.S. Home Sales Decline for the Fifth Straight Month
Last Updated 3:00PM EST
Stocks are in the green heading into the final hour of trading. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.01%, 0.5%, and 1.4%, respectively.
The utilities sector is the laggard so far, as it is down 1.2%, while the best performing sector, communications, is up 1.6%.
On Wednesday, the National Association of Realtors released its U.S. Existing Home Sales report, which measures the change in sales of existing residential buildings during the previous month on an annualized basis. Existing home sales came in at 5.12 million for the month of June, below the expected 5.38 million.
Nevertheless, this figure was the lowest reading since June 2020, as existing home sales declined month-over-month in June by 5.4%, accelerating from the 3.4% decline in May. Indeed, this represents the fifth straight month of declines, as rising interest rates continue to push mortgage rates higher. On a year-over-year basis, sales fell 12.8%.
It is likely that this downward trend will continue as the Federal Reserve continues to hike interest rates to combat inflation.
Mortgage Applications Continue to Decrease
Last Updated 12:00PM EST
Stocks are in the green halfway into the trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.3%, 0.8%, and 1.8%, respectively.
The healthcare sector (XLV) is the laggard so far, as it is down 0.4%, while the best performing sector, communications (XLC), is up 2%.
WTI crude oil remains under $100 per barrel, hovering around the high-$99 per barrel range. Meanwhile, the U.S. 10-Year Treasury yield is hovering around 3.03%, which is flat when compared to yesterday’s close. The spread between the 10-Year and Two-Year U.S. Treasury yields remains negative, as it currently sits at -20 basis points.
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate increased to 5.82% compared to last week’s reading of 5.74%.
As a result of the higher rates, the number of mortgage applications decreased week-over-week by 6.3%. This follows last week’s decline of 1.7% and a decrease of 5.4% from two weeks ago, indicating that homebuyers may be worried about a recession as sentiment and economic data continue to worsen.
In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 281.1 compared to 698.3 on July 14, 2021.
Stocks are Flat to Start the Day; WTI Crude Oil Falls Below $100
Last Updated 10:00AM EST
Stocks are little changed 30 minutes into Wednesday’s trading session as investors await more earnings data. As of 10:00 a.m. EST, the utilities sector (XLU) is the laggard so far, as it is down 0.8%. Conversely, the technology sector (XLK) is the session’s leader, with a gain of 0.2%.
WTI crude oil fell below $100 per barrel after the American Petroleum Institute released its weekly survey showing that U.S. oil inventories rose higher than expected. Indeed, expectations were for a 330,000 barrel increase in the previous week. However, the actual number came in at 1.86 million barrels.
The Energy Information Administration will release its official crude oil inventory data later on in the day. Nevertheless, the price is now hovering around the mid-$98 per barrel range, which equates to a decrease of roughly 5% from the previous close.
Meanwhile, bond yields are slightly lower, as the U.S. 10-Year Treasury yield is now hovering around 2.98%. This represents a decrease of more than five basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 3.19%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, currently sitting at -21 basis points.
Pre-Market Update
Stock futures are pointing to a positive opening today after the Street cheered a slew of earnings yesterday.
Futures on the Dow Jones Industrial Average (DJIA) are up 0.28%, while those on the S&P 500 (SPX) are up 0.39% as of 3.11 a.m. EST, Wednesday. Concurrently, the tech-loaded NASDAQ 100 (NDX) futures are also up 0.56%.
Yesterday, the Dow recorded its biggest gain of 754 points, or 2.43%, in recent weeks as investors reacted positively to recent earnings amid concerns of teething inflation and another impending rate hike on July 27. The S&P 500 and Nasdaq 100 also gained 2.76% and 3.11%, respectively.
Major Asian markets such as China, Japan, and India too are in the green today, while the DAX and CAC40 are already up 0.13% and 0.24%, respectively. Additionally, the cryptoverse is also breathing a sigh of relief, with Bitcoin (BTC-USD) up 8.4% and Cardano up nearly 14% over the past 24 hours.
The passage of the CHIPS Bill seems to have helped NVIDIA (NVDA) shares gain nearly 7% yesterday. Meanwhile, in a change of fortune, Netflix’s (NFLX) shares jumped 13.4% despite losing subscribers for the second quarter in a row. The company’s Q2 earnings beat estimates, and there is optimism about advertising dollars.
Similarly, Twitter (TWTR) rose nearly 3% after the Delaware Court of Chancery agreed to move forward with an expedited trial over its $44 billion takeover feud with Elon Musk. The five-day trial is now set to take place in October.
The U.S. Dollar Index is now at 106.69, slightly lower than it was at the start of the week. As uncertainty persists about the possible magnitude of the rate hike on July 27 (75 basis points or higher), the Ten-Year Treasury Yield moved southward to 3.0079%. Simultaneously, the Two-Year Treasury Yield also corrected to 3.2146%. This means the yield curve continues to stay inverted, keeping the possibility of a recession real.
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