Markets

Daily Markets: Fears Over Inflation Put Pressure on Stocks

Close-up of the street sign for Wall Street
Credit: Andrew Kelly - Reuters / stock.adobe.com

Today’s Big Picture

Fears over inflation and rising energy prices continue to put downward pressure on equities. The major equity indices in Asia-Pacific closed in the red today with Hong Kong’s Hang Seng and South Korea’s Kospi both dropping 1.4%, China’s Shanghai Composite losing 1.3%, Japan’s Nikkei falling 0.9%, and Australia’s ASX 200 dropping 0.3%. Europe is following this lead and is mainly red across the board in midday trading on these same concerns. The UK is bucking this trend as the only major market trading up so far today.

U.S. futures are little changed this morning as the markets gear up for today’s U.S. House to vote on a short-term increase to the government’s borrowing limit which would avert the immediate threat of a catastrophic default. We’d note this is but a temporary fix and sets the stage for what will likely be a more contentious showdown in December.

Data Download

International Economy

According to the China Passenger Car Association (CAPA), automobile sales in China fell 19.6% YoY to 2.07 million vehicles in September with passenger cars down 17% YoY to 1.58 million vehicles. On a positive note deliveries of what the CAPA calls “new-energy vehicles” (which includes EVs) rose 202% YoY to 33,000 units. Tesla (TSLA) reported it sold 56,006 China-made vehicles in September, up 26.5% MoM.

With natural gas prices hitting new record highs almost daily as we head into the colder months, which will only drive demand further, we are seeing some energy-intensive companies shutting down operations temporarily because they are simply too costly to run. Average consumption in Europe’s industrial sector is 12% below its pre-pandemic level, according to Engie EnergyScan.

The European Union is set to offer the largest-ever green bond today, raising $13.9 billion, surpassing the prior record set by the UK last month.

On the inflation front, we had a few data points this morning:

  • As expected, South Korea is keeping its base interest rate at 0.75%, but policymakers did note that tightening could come as early as November.
  • Wholesale prices in Germany were up 13.2% YoY in September.

Domestic Economy

The September reading of the NFIB Small Business Optimism Index fell to 99.1 in September from 100.1 the prior month, missing the 99.5 consensus.

Later this morning, we’ll receive the August data for Job Openings and Labor Turnover Survey better known as the monthly JOLTS report. For July, the JOLTS report indicated the number of job openings hit a record high of 10.9 million.

Markets

After being up as much as 0.6% intraday, the S&P 500 ended down 0.7% yesterday, as did the Dow, with the Nasdaq fell 0.6%. The only two sectors in manage gains were real estate end materials, gaining 0.1% and 0.03% respectively. The bond market was closed in observance of Columbus Day.

Stocks to Watch

Earnings Announcements & Guidance

Before U.S. equity markets open this morning, Fastenal (FAST) is expected to report its quarterly results.

Reports indicate China Evergrande Group (EGRNY) didn't make coupon payments due Monday on U.S. dollar bonds with some bondholders sharing they hadn't received interest due on Evergrande's 9.5% note due 2022 and 10% bonds due 2023.

Sonoco Products (SON) announced it will raise the price of all paperboard tubes and cores by at least 6%, effective with U.S. and Canada shipments on or after November 8. Chemical company Celanese (CE) announced a global surcharge on its portfolio of Amcel, Celcon, Hostaform, and other polyacetal (POM) products, beginning on October 25.

While the U.S. bond market was closed yesterday for the Columbus Day holiday, shares of utility companies closed lower across the board, leading the Utilities Select Sector SPDR Fund (XLU) to close the day down 1.4% vs. 0.7% for the S&P 500. As a frame of reference shares of utilities tend to fall when bond yields rise, and the benchmark 10-year Treasury yield hit 1.614% yesterday from 1.294% at the end of August.

Stellantis (STLA) announced plans to transform its Turin factory into an electric vehicle hub in an attempt to increase efficiency in the Italian region with the facility expected to be responsible for a new Maserati electrified platform.

Bombardier (BDRBF) CEO Eric Martel says that private airline demand has recovered to pre-pandemic levels driven by new customers

EasyJet (ESYJY) now expects seat occupancy levels reach 70% of 2019 levels in the December quarter, up from 60% forecasted a month ago as demand for holiday travel rebounds, particularly in the UK.

IPOs and related

After the close on Friday, Robinhood Markets (HOOD) filed an amended form S-1, seeking approval from the Securities and Exchange Commission for an expedited 98 million share sale by early investors previously announced in early August. Sales could open as soon as Wednesday afternoon if the SEC approves the request.

M&A Activity

EU antitrust regulators are expected to open a full-scale investigation into Nvidia’s (NVDA) $54 billion bid for ARM Holdings (ARMHF) because offered concessions are not enough to “address competition concerns.”

Online Automotive Retailer Vroom (VRM) agreed to acquire California-based United Auto Credit Corporation (UACC), a nationwide technology-enabled non-prime auto lender serving the independent dealer market, for $300 million in cash.

Dividends and More

According to data from FactSet, the S&P 500 components EPS is expected to grow by 28.4% in Q3, after Q2’s 96% expansion from the Covid-driven 2020 economic shutdown.

After Today’s Market Close

Principal Financial (PMFP) is slated to report its quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • October 12: JOLTs report
  • October 13: CPI, FOMC Minutes
  • October 14: Weekly jobless claims, PPI, Monthly budget statement
  • October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment (preliminary), Business Inventories
  • October 18: Industrial Production, NAHB Housing Market Index, Net Long-term Tic Flows, Foreign Bond Investment, Overall Net Capital Flows
  • October 19: Building Permits, Housing Starts

Thought for the Day

“Treat yourself like someone you’re responsible for helping.” ~Jordan Peterson

Disclosures

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

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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