State of The Markets | Stocks Tumble Ahead of Inflation


Stocks tumble ahead of inflation. US stocks closed lower on Tuesday ahead of the inflation reading that is expected to cool off at core. YoY figure is expected to increase from 8.6% to 8.8% while core is expected to cool down from 6% to 5.7%. Tech-laden Nasdaq (-0.95%) fell the most, followed by S&P (-0.92%), Dow (-0.62%) and Russell (-0.22%) while the Dollar index continued to flirt with the 108 handle.

As at writing, yields inversions between the 10Y (2.96%) and lower maturities 1Y (3.08%), 2Y (3.04%) remains as bond markets continue to be in haywires.

In the commodities market, recession fears and Dollar strength sent major commodities lower with Crude settled below $93.40/bl while gold edged lower to $1,725.80/oz as New York closed. Elsewhere, iron ore continued its downward trajectory to $109.70/tn as bidders lost interest in the commodity.

In the FX space, sentiments remain bearish as King Dollar continues to reign in demand in the long and medium term as short term traders bought the oversold Yen, Aussie and Kiwi. Euro finally reached a parity as the common currency was sold-off across all horizons.

On Wednesday, markets expect to remain cautious while waiting for earning reports from Fastenal (FAST), Delta Airlines (DAL) and Washington Federal (WAFD) as well as the much awaited inflation figures and mortgage applications. The EIA petroleum status report will be in the spotlight for energy traders.

OUR PICK – No New Stock Pick

We stay on the sideline. Bond markets were in haywires as indicated by the following yields as at writing. 1Y (3.08%), 2Y (3.04%), 3Y (3.08%) 5Y (3.00%), 7Y (3.02%), 10Y (2.96%) and 30Y (3.15%). Investors are dumping bonds as better rates are coming in anticipation of another 75 basis points hike this month in light of what might be a peak inflation. In such a scenario, we see the Dollar to be capped below the 108.50 handle.

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