Daily Markets: Is the Fed Winning Its Fight Against Inflation?

Today’s Big Picture

Asia-Pacific equity markets finished the day mixed with a few markets ending the day close to flat. India’s SENSEX advanced 0.37% led by Energy and Financials. Hong Kong’s Hang Seng and South Korea’s KOSPI were 0.09%, and 0.07% lower while Taiwan’s TAIEX eked out a 0.05% gain. Japan’s Nikkei declined 0.21%, China’s Shanghai Composite fell 0.45%, and Australia’s ASX All Ordinaries closed 0.77% lower on a broad decline led by Consumer Durables.

European markets are mostly lower in midday trading and U.S. equity futures point to a modestly lower market open later this morning ahead of today’s August Consumer Price Index (CPI) report, which will be released at 8:30 AM ET. The Federal Reserve is widely expected to keep the fed funds rate steady exiting its policy meeting next week; however, the market will be gauging progress in core-CPI data this morning to determine whether another rate hike later this year remains on the policy table.

Given the rise in oil and gas prices, headline CPI for August rose 3.7% versus expectations of 3.6% YoY. Excluding volatile food and energy, core CPI increased 0.3% and 4.3% respectively, against estimates for 0.2% and 4.3%, meaning that the Fed still has work to do to bring inflation down to its target goals. Our recommendation to readers is to gauge the market’s response to the August CPI report through reactions in the 10-year Treasury yield, which as of this writing is at 4.3%, and changes in November interest rate expectations tallied by the CME FedWatch Tool.

Data Download

International Economy

Producer prices in Japan rose by 3.2% YoY in August, slowing from a downwardly revised 3.4% gain in July and posting the lowest reading since March 2021. The August figure marked the eighth consecutive month of a slowdown in producer inflation.

The UK economy shrank 0.5% MoM in July, the biggest decline so far this year, reversing 0.5% growth in June and worse than the 0.2% consensus forecast. Manufacturing output in the UK fell 0.8% MoM in July, below market expectations of 1% fall but still a sharp drop versus the 2.4% increase in June.

Industrial production in the Euro Area declined by 2.2% YoY in July following a downwardly revised 1.1% drop in June and easily surpassing market expectations of a 0.3% fall.

Domestic Economy

As discussed above, today brings the August CPI report as well as the usual Wednesday data releases of weekly MBA Mortgage Applications Index and EIA Crude Oil Inventories data.

Markets

Energy (2.36%) continued to push higher as the International Energy Agency (IEA) predicted that previously announced production restrictions would create a significant supply crunch by year’s end. The rest of the market got a little nervous ahead of today’s CPI release with Technology (-1.81%) and Communication Services (-1.04%) selling off most, followed by Consumer Discretionary and Consumer Staples names which fell 0.91% and 0.86%, respectively. The S&P 500 declined 0.57% and the Nasdaq Composite fell 1.04% while the Dow (-0.05%) and the Russell 2000 (0.01%) were essentially flat by the close. In individual names, General Motors (GM) and Ford Motor Company (F) posted gains yesterday on speculation that negotiations with the United Auto Workers (UAW) Union were progressing. However, indications this morning point to those and other automakers potentially giving back those gains and maybe more as UAW members are preparing to go on strike if a deal cannot be reached by tomorrow evening.

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

• Dow Jones Industrial Average: 4.52%
• S&P 500: 16.21%
• Nasdaq Composite: 31.60%
• Russell 2000: 5.34%
• Bitcoin (BTC-USD): 55.82%
• Ether (ETH-USD): 33.02%

Stocks to Watch

Before U.S. equity markets begin trading today, Cracker Barrel (CBRL) and REV Group (REVG) will report their quarterly results.

Spirit Airlines (SAVE) missed downside guidance for its September quarter with revenue now expected to be $1.245-$1.255 billion vs. the $1.32 billion consensus and prior guidance of 1.30-1.32 billion. The company also sees its fuel cost per gallon at $3.06 up from $2.80, impacting its margin expectations.

The Mosiac Company (MOS) shared its revenue in July and August fell 36% YoY to $1.15 billion. During that two-month period, phosphate revenue fell 34% YoY to $642 million and potash revenue dropped 49% YoY to $489 million.

MGM Resorts (MGM) shared it recently identified a cybersecurity issue affecting certain of its systems and began an investigation with assistance from leading external cybersecurity experts. The investigation and MGM will continue to implement measures to secure its business operations and “take additional steps as appropriate.”

Automakers BMW Group (BMWYY), Ford Motor Company (F), and Honda Motor (HMC) announced the creation of ChargeScape, a new equally-owned company that will connect electric utilities, automakers, and interested electric vehicle customers. The company is expected to be operational by early 2024 and EV customers will eventually have the opportunity to share “the energy stored in their EV batteries with the grid during times of peak demand through vehicle-to-grid applications.”

Huawei Technologies and Xiaomi (XIACF) reached a global patent cross-licensing agreement that covers multiple communications technologies including 5G.

Wells Fargo (WFC) CFO Mike Santomassimo said the bank could implement more layoffs to improve efficiency. At the end of 2Q 2023, Wells Fargo had 233.8K employees, compared to 243.7K in the year-ago quarter.

Amazon (AMZN) will raise contracted drivers' pay as part of a $440 million investment this year in its third-party delivery program. The company expects the delivery associates to earn $20.50 per hour on average, or more, plus benefits.

IPOs

Arm Holdings (ARM) received enough backing to secure at least the top end of its $47-$51 IPO range, bringing valuation to $54.5 billion. Readers looking to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Semtech (SMTC) is slated to report 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

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

“Experience is a hard teacher because she gives the test first, the lesson afterwards.” ―Vernon Sanders Law

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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