Daily Markets: Fed Officials Strike Hawkish Tone in Fight Against Inflation

Today’s Big Picture

Asia-Pacific equity markets finished the day lower except for India’s SENSEX, which gained 0.50% and South Korea’s KOSPI closed flat, down a mere 0.02%. China’s Shanghai Composite declined 0.18% while both Australia’s ASX All Ordinaries and Taiwan’s TAIEX fell around 0.25%. Japan’s Nikkei closed 1.16% lower as lower-than-expected GDP growth, uncertainty around Fed rate actions, and China’s iPhone ban (see more below) weighed on stocks. Officials at the Hong Kong Exchange halted trading today after the Hong Kong Observatory issued a “Black Rainstorm Signal” warning overnight and storms have caused major flooding throughout the city.

European markets are mostly lower in midday trading and U.S. equity futures point to a lower open when those markets begin trading later this morning.

Weighing yet again on the market are hawkish comments from Federal Reserve officials that more may need to be done in the fight against inflation. While the central bank will continue to evaluate upcoming economic data, Dallas Fed President Lorie Logan shared that "lower inflation in recent months is encouraging but lower inflation isn't necessarily low enough inflation." New York Fed's John Williams echoed that view, saying monetary policy is in a good place, but more data needs to be analyzed to determine how to proceed with rates.

The concern shared by Logan is “If stronger economic activity continues, it could lead to a resurgence in inflation.” This week’s stronger-than-expected ISM August Non-Manufacturing Index pointed to just that but with tighter credit conditions unfolding, we suspect the Fed will want to examine more than one or two additional pieces of data before making its next policy move. One of those pieces of data will be the August Consumer Price Index (CPI) and the trend it reveals for the core CPI in August. Before we get that data, today sees Federal Reserve Vice Chair for Supervision Michael Barr and San Francisco Fed President Mary Daly making the rounds, and we suspect today’s trading will reflect their comments.

Data Download

International Economy

The Japanese economy grew by 4.8% on an annualized basis in 2Q 2023 compared with preliminary data of a 6.0% expansion and a downwardly revised 3.2% increase for 1Q 2023.

The German consumer price inflation rate was confirmed at 6.1% year-on-year in August, marking a marginal decline from 6.2% in the previous month and matching the 14-month low recorded in May. The core rate, which excludes volatile items like food and energy, remained unchanged at 5.5% in August.

At 9:30 PM ET tonight, China will publish its inflation data for August, which is expected to come in at 0.3% MoM, up from 0.2% the prior month. The country will also report its August PPI figure as well, one the market sees coming in at -3% vs. -4.4% in July.

Domestic Economy

At 3 PM ET, the July Consumer Credit report will be published late in the trading day. The combination of the falling savings rate and the upcoming student debt repayments will have folks inspecting this aspect of consumer balance sheets, questioning the impact on disposable income and spending prospects.

The Wall Street Journal reports health insurance costs are climbing at the steepest rate in years, with some projecting the biggest increase in more than a decade will wallop businesses and their workers in 2024.

Unions for Las Vegas Strip workers have set a date for a citywide strike vote later this month that, if approved, could lead to more than 50,000 housekeepers, bartenders, and other staff walking off the job.

Markets

In a case of turnabout is fair play, Chinese officials have been increasingly restricting the use of Apple (AAPL) iPhone products by government employees. This is in response to the now almost four-year ban on Huawei telecom hardware and coincides with Huawei’s recent launch of what many consider to be a suitable replacement 5G smartphone. Shares of Apple fell 2.19% yesterday, and so far, have seen a 6.40% decline since this Tuesday. Unsurprisingly, Technology took the biggest hit, down 1.45% led by this pressure and supported by other names trading off in sympathy.

The remaining sectors were mixed and saw results within plus or minus 0.50% except for Real Estate (0.82%) and Utilities (1.31%). Broad index results mirrored yesterday’s pre-market futures as the Dow was the sole gainer, up 0.17% while the S&P 500 fell 0.32%, the Nasdaq Composite declined 0.89% and the Russell 2000 closed 0.99% lower. In individual names, shares of American Tower Corp (AMT) gained 2.55% after the company’s CFO spoke at Goldman Sach’s Communicopia & Technology Conference, reiterating his position that the company is poised to take advantage of not just current infrastructure spending but also future growth in the telecom sector.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 4.08%
• S&P 500: 15.93%
• Nasdaq Composite: 31.36%
• Russell 2000: 5.37%
• Bitcoin (BTC-USD): 57.74%
• Ether (ETH-USD): 37.25%

Stocks to Watch

Before U.S. equity markets begin trading today, Kroger (KR) will report its quarterly results.

Taiwan Semiconductor (TSM), which supplies chips to Apple, AMD (AMD), Nvidia (NVDA), and others, reported its August revenue rose 6.2% MoM to ~NT$188.69 billion.

ChipMOS Technologies (IMOS) shared its August revenue rose 6.9% YoY to NT$1.83 billion.

July quarter revenue and EPS reported by DocuSign (DOCU) topped consensus expectations led by the 10% YoY increase in billings for the quarter to $711.2 million vs. management’s $646-$656 million guidance. In addition to issuing upside guidance for the current quarter and lifting its view on the full year, the company’s board authorized a $300 million increase in its existing stock repurchase program to $500 million.

Guidewire Software (GWRE) reported July quarter EPS that doubled the consensus forecast but that is overshadowed by the sequential drop in revenue the company is forecasting for the current quarter to $197-$202 million vs. the $212.49 million consensus and the $270 million booked in the July quarter.

July quarter EPS from RH (RH) crushed the consensus forecast and revenue was better than expected as well despite falling 19.3% YoY. That good news was offset by the company’s downside revenue guidance for the current quarter of $740-$760 million vs. the $785.90 million consensus and the $800.48 million booked in the July quarter. RH continues to expect the luxury housing market and the broader economy to remain challenging throughout FY24 and into next year as mortgage rates continue to trend at 20-year highs.

Goldman Sachs (GS) is planning another round of job cuts for employees who are considered underperformers. These cuts are expected to begin in late October.

IPOs

Readers looking to dig into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report their quarterly results after equities stop trading. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Monday, September 11

• US: Consumer Inflation Expectations – August

Tuesday, September 12

• China: Vehicle Sales, New Yuan Loans and Loan Growth – August
• Japan: Machine Tool Orders – August
• Eurozone: ZEW Economic Sentiment Index - September
• US: NFIB Small Business Optimism Index – August
• US: USDA WASDE Report – August

Wednesday, September 13

• Japan: Producer Price Index – August
• UK: GDP, Industrial and Manufacturing Production – July
• Eurozone: Industrial Production - July
• US: Weekly MBA Mortgage Applications
• US: Consumer Price Index – August
• US: Weekly EIA Crude Oil Inventories
• US: Treasury Budget – August

Thursday, September 14

• US: Weekly Initial & Continuing Jobless Claims
• US: Producer Price Index – August
• US: Retail Sales – August
• US: Business Inventories – July
• US: Weekly EIA Natural Gas Inventories

Friday, September 15

• China: Industrial Production, Unemployment Rate, Retail Sales – August
• Eurozone: Labor Cost Index, Wage Growth – 2Q 2023
• US: Import/Export Prices – August
• US: Empire Manufacturing Index – September
• US: Industrial Production & Capacity Utilization – August
• US: University of Michigan Consumer Sentiment Index (Preliminary) – September

Thought for the Day

"Autumn is the antidote to stifling summer." -Terri Guillemets

Disclosures

• AMD (AMD), American Tower Corp (AMT), Nvidia (NVDA) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Apple (AAPL) is a constituent of the Tematica Research Thematic Dividend All-Stars Index

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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