U.S. equities are modestly higher in afternoon action on the heels of yesterday's sharp drop that came as consumer price inflation surprisingly came in hot. However, the markets remain jittery as August inflation data continues to pour in, with producer price inflation dipping but core wholesale prices coming in hotter than expected. The inflation data appears to have solidified expectations that the Fed will remain aggressive with next week's monetary policy decision looming. Treasury yields are mixed, and the U.S. dollar is dipping after Tuesday's jump. Crude oil prices are rising, and gold is lower. In other economic news, mortgage applications fell for a fifth-straight week. In equity news, Starbucks is higher after issuing an upbeat forecast, and Dow component Johnson & Johnson is rising after announcing a $5 billion share repurchase program, but Nucor Corporation is falling after delivering a softer-than-expected outlook. Europe was mostly lower, adding to Tuesday's decline, while markets in Asia fell broadly on the heels of yesterday's drop in the U.S. and the inflation data.
At 12:50 p.m. ET, the Dow Jones Industrial Average is up 0.3%, the S&P 500 Index is rising 0.5%, and the Nasdaq Composite is increasing 0.8%. WTI crude oil is gaining $2.56 to $89.87 per barrel, and Brent crude oil is advancing $2.48 at $95.65 per barrel. The gold spot price is trading $5.20 lower to $1,712.30 per ounce, and the Dollar Index is dipping 0.3% to 109.45.
Starbucks Corporation (SBUX $93) raised its 2023 revenue growth outlook and increased its three-year revenue and earnings-per-share (EPS) guidance. SBUX also said it plans to resume its share buyback program. The company cited its decisive actions and targeted investments in partners, customers, and stores that are expected to accelerate its long-term growth. Shares are trading solidly higher.
Dow member Johnson & Johnson (JNJ $165) announced a $5.0 billion share repurchase program, citing continued confidence in its business and pipeline. JNJ also reaffirmed its full-year EPS and operational sales guidance. JNJ is moving to the upside.
Shares of Nucor Corporation (NUE $123) are dropping after the steel company issued earnings guidance that came in below estimates, noting that it expects its steel mills segment earnings to be considerably lower in Q3, due to metal margin contraction and reduced shipping volumes particularly out of its sheet and plate mills. However, NUE noted that its steel products segment is expected to have another strong quarter, and raw materials segment earnings are expected to be similar to Q2, and it continues to believe 2022 will be the most profitable year in its history.
The S&P 500 Index fell sharply yesterday on the heels of a hotter-than-expected August consumer price inflation report, which boosted Treasury yields and resumed the U.S. dollar's rally. For a look at the volatility, check out what our experts from the Schwab Center for Financial Research think in the article, Stock Market Volatility: Inflation Strikes Again. Given these conditions, Schwab recommends that investors stay disciplined. For stock investors, that means taking a sector-neutral approach and focusing on high-quality factors such as strong profit margins, high free-cash-flow yield, low volatility, and positive forward earnings revisions. Investors should also periodically rebalance their portfolios to maintain their strategic long-term allocations in the face of rapidly shifting markets.
Wholesale price inflation remains elevated, mortgage applications fall for fifth-straight week
The Producer Price Index (PPI) (chart), showed prices at the wholesale level in August dipped 0.1% month-over-month (m/m), matching the Bloomberg consensus, and versus July's upwardly revised 0.4% decrease. The core rate, which excludes food and energy, rose 0.4% m/m, topping estimates calling for a 0.3% gain and above the prior month's upwardly adjusted 0.3% rise. Y/Y, the headline rate was 8.7% higher, south of expectations of an 8.8% increase and compared to the prior month's unadjusted 9.8% rise. The core PPI was up 7.3% y/y last month, above estimates of a 7.0% rise but below July's unadjusted 7.6% increase.
The MBA Mortgage Application Index declined 1.2% last week, following the prior week's decrease of 0.8%. The index is down for a fifth-straight week as a 4.2% drop for the Refinance Index more than offset a 0.2% rise for the Purchase Index. The decrease came as the average 30-year mortgage rate moved 7 basis points (bps) higher to 6.01% and is up 298 bps versus a year ago.
Treasury yields are mixed, with the yield on the 2-year note 1 bp higher at 3.77%, while the yield on the 10-year note is decreasing 1 bp to 3.41%, and the 30-year bond rate is down 2 bps to 3.49%.
The markets continue to grapple with how much will the Fed remain aggressive with its monetary policy as containing inflation remains top priority. The U.S. dollar has pulled back recently but remains near multi-year highs.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, Rate Hikes, Quantitative Tightening, and Bond Yields, how in its quest to reduce inflation, the Federal Reserve appears set to continue to hike interest rates and reduce the size of its balance sheet. She offers a look at what this may mean for the bond market. Kathy also offers analysis of the greenback in her commentary, The Strong Dollar: Can It Continue?
Europe extends yesterday's decline as more U.S. inflation data poured in
Stocks in Europe mostly added to yesterday's drop, with the markets remaining skittish on the heels of yesterday's surprisingly hot consumer price inflation report out of the U.S. The data appeared to resuscitate expectations that the Fed will remain highly aggressive with its monetary policy to fight inflation, and recent inflation data on this side of the pond will likely keep the Bank of England and European Central Bank aggressive as well. Although consumer, retail, and producer price inflation data out of the U.K. today came in mostly cooler than expected for August, pricing pressures remained severely elevated. Also, the markets digested today's producer price inflation report out of the U.S. that showed wholesale price inflation remains hot, but in some areas moderated somewhat.
Amid the backdrop of elevated inflation pressures, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, Home Is Where the Inflation Is, how central banks that base inflation measures on rentals rather than home prices may persist in hiking rates, thus applying more economic brakes despite easing home sales. You can follow Jeff on Twitter: @JeffreyKleintop. The euro and British pound rebounded versus the U.S. dollar, after yesterday's drops versus the greenback on the inflation data. Bond yields in the Eurozone were mixed and rates in the U.K were lower. In other economic news, Eurozone industrial production for July fell more than expected.
The U.K. FTSE 100 Index was down 1.5%, France's CAC-40 Index declined 0.4%, Germany's DAX Index dropped 1.2%, Switzerland's Swiss Market Index fell 1.3%, and Spain's IBEX 35 Index dipped 0.1%, while Italy's FTSE MIB Index gained 0.5%.
Asia stocks fall, following U.S. market rout yesterday
Stocks in Asia saw widespread losses on the heels of the sharp drop in the U.S. yesterday that was fueled by a hotter-than-expected consumer price inflation report for August that boosted the U.S. dollar and Treasury yields. The inflation data bolstered expectations that the Fed will remain ultra-aggressive with its monetary policy to try to restore price stability. With central banks in North America, Europe, and the U.K. aggressively tightening monetary policies, the Bank of Japan (BoJ) has abstained, and China's central bank has diverged and actually loosened its policy recently. The moves come as China has continued to deploy COVID-related restrictions in parts of the country, which has negatively impacted economic growth. China, the world's second-largest economy, has also been hampered by real estate struggles, regulatory crackdowns, and geopolitical tensions with the U.S. Schwab's Jeffrey Kleintop provides commentary on China's situation in his article, China Q&A: Top 5 Questions, discussing various topics including inflationary concerns, currency movements, government policies, and more. In economic news, Japan's core machine orders unexpectedly increased in July, while its industrial production for that month was revised to a smaller pace of growth than initially reported.
Japan's Nikkei 225 Index fell 2.8%, with the yen trimming yesterday's drop versus the U.S. dollar in the wake of the U.S. inflation but remains at multi-decade lows that have come amid the BoJ's lack of keeping up with other key global central banks in monetary policy. China's Shanghai Composite Index declined 0.8%, and the Hong Kong Hang Seng Index decreased 2.5%. India's S&P BSE Sensex 30 Index moved 0.4% to the downside, Australia's S&P/ASX 200 Index dropped 2.6%, and South Korea’s Kospi index traded 1.6% lower.
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