U.S. equities are mixed as investors await this week’s highly anticipated September inflation data. The markets seem to be on edge at the prospect of further monetary policy tightening, which could be enhanced by the inflation reports. In economic news, small business optimism unexpectedly increased but remained below the 48-year average for a ninth-consecutive month. Equity news is light as Q3 earnings season kicks off this week, while Leggett & Platt lowered its full-year guidance, and KLA Corporation ceased some of its business with China-based customers following export restrictrions. Treasury yields are mixed after a return to action following yesterday’s holiday. The U.S. dollar is mostly unchanged, crude oil prices are declining, and gold is ticking higher. Asian stocks were mostly lower following new export rules on semiconductor chips from the U.S. European stocks are lower as the Bank of England announced further intervention to try to ensure financial stability. The global markets continue to grapple with the possibility of future global rate hikes as inflationary concerns remain.
At 10:52 a.m. ET, the Dow Jones Industrial Average is up 0.2%, the S&P 500 Index is declining 0.6%, and the Nasdaq Composite is decreasing 1.0%. WTI crude oil is down $1.56 to $89.57 per barrel, and Brent crude oil is losing $1.55 at $94.64 per barrel. The gold spot price is ticking $1.00 higher to $1,676.20 per ounce, and the Dollar Index is advancing is mostly unchanged at 113.12.
Leggett & Platt Incorporated (LEG $32) lowered its full-year guidance and also announced several recent acquisitions. President and CEO of the diversified furniture and engineered components company, Mitch Dolloff, stated, “The increasingly challenged global economic environment and consumer backdrop is expected to result in lower than previously anticipated sales and earnings.” He mentions how industry headwinds such as inflationary and monetary policy have impacted consumer spending and sentiment, as well as inventory levels. Additionally, LEG reported that it acquired a leading global manufacturer of hydraulic cylinders for heavy construction machinery that has manufacturing facilities in several places around the world. LEG is trading noticeably lower.
Semiconductor manufacturing company KLA Corporation (KLAC $288) reported that it would cease some of its business with China-based customers. This follows President Biden’s announcement last Friday that the U.S. would impose exportation restrictions on certain types of semiconductor chips to China. Shares are lower.
Despite the rocky finish, the S&P 500 Index ended higher last week after rallying on Monday and Tuesday, bouncing back from a string of weekly declines that took the index to levels not seen since 2020. Inflation pressures have persisted, as noted by the jobs report released last Friday, forcing the Fed to aggressively tighten monetary policy and boosted concerns about the economy as discussed in the article, Stock Market Volatility: Jobs Report Kills Rally. Meanwhile, as the markets gear up for the start of Q3 earnings season next week, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Earnings: Trampled Under Foot? how the bear market has been driven by multiple compression, making valuations look relatively compelling, but expected weakness in earnings may limit the upside potential for stocks.
Small business optimism unexpectedly increased
The National Federation of Independent Business (NFIB) Small Business Optimism Index for September unexpectedly increased to 92.1 from August's 91.8 level, and versus the Bloomberg consensus estimate of a slight decline to a 91.6 reading. The index posted the ninth-consecutive month below the 48-year average of 98 but reversed some of the declines in the first half of the year. 30% of owners noted that inflation was their single most important problem in operating their business.
The NFIB said, "Inflation and worker shortages continue to be the hardest challenges facing small business owners. Even with these challenges, owners are still seeking opportunities to grow their business in the current period."
Treasury yields are mixed in a return to action following yesterday’s holiday, as the yield on the 2-year Treasury note is 4 basis points (bps) lower to 4.27%, while the yield on the 10-year note is gaining 3 bps to 3.91%, and the 30-year bond rate is rising 5 bps to 3.89%.
Volatility has spiked recently as markets react to concerns about the ability of the global economy to cope with U.S. interest rates which have risen sharply. Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her latest article, Markets to Fed: Slow Down, You Move Too Fast, and how, if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it.
Bond yields and the U.S. dollar have been bolstered as of late, and Schwab’s Liz Ann Sonders examines the impact of the greenback’s recent rise in her latest article, Ripple(s) From Surging Dollar. She discusses how while a spike in global market volatility has prompted some investors to think a Fed response is imminent, we caution against thinking that intervention is a bullish development.
Europe lower as markets grapple with the possibility of further global rate hikes
Stocks in Europe are trading lower in late-day action, as the markets continue to grapple with a host of economic concerns. The recent volatility in the currency and bond markets, the festering regional energy crisis in the region, and the tight global monetary policy environment are all weighing on the market’s outlook. Friday’s stronger-than-expected U.S. September labor data appears to be dampening hopes that the pace of rate hikes by the Fed could ease. Adding to the uneasiness, investors seem to be preparing for another hawkish Fed rate hike in early November, which could be enhanced by the upcoming inflation data out of the U.S. later this week.
Additionally, the Bank of England (BoE) announced further liquidity measures yesterday and stepped in with another emergency intervention for a second-straight day today in an attempt to stave off a “fire sale” of UK bonds by pension funds. These actions, which includes increasing the size of its daily bond auctions, have been undertaken to try to create financial stability following the BoE’s decision to buy long-term bonds after the British pound fell to record lows recently. The British pound and the euro are trading higher versus the U.S. dollar, while bond yields in the U.K. are trading lower, and rates in the Eurozone are mixed.
The worrisome inflation picture is being exacerbated by an ensuing energy crisis in the region due to the escalating war in Ukraine. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, What's Next: Good, Bad, & Ugly, that the persistence of global inflation could determine which of the three paths central banks may follow and which market qualities investors might consider for their portfolios. In economic news in the region, the Eurozone’s investor confidence fell more than expected.
The U.K. FTSE 100 Index is decreasing 1.1%, Italy's FTSE MIB Index is losing 1.3%, Germany's DAX Index and Spain's IBEX 35 Index are down 1.0%, Switzerland's Swiss Market Index is trading 0.9% lower, and France's CAC-40 Index is declining 0.8%.
Asia mostly lower amid geopolitical concerns and the prospect of tightening monetary policy
Stocks in Asia finished mostly lower, extending the recent declines which came amid President Biden’s announcement on Friday that the U.S. would expand restrictions on the exportation of certain types of semiconductor chips to China. The declines were led by a continued selloff in semiconductor shares throughout the region. The mood of markets around the globe appeared fragile ahead of this week’s U.S. inflation reports, as investors seemed to remain on edge at the prospect of further monetary policy tightening.
The markets have grappled with tighter monetary policies in most parts of the world, led by the Fed, though Japan has maintained its accommodative policy and China has actually provided further monetary policy stimulus, which has weighed on their respective currencies. 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. Earlier, a Chinese state-owned newspaper endorsed China’s Zero-Covid policy for the second day in a row, which quashed investors’ hopes for a relaxation in policy. As a result, shares of casino companies in China continued to slide. In economic news, Australia’s consumer confidence declined from the previous month.
Japan's Nikkei 225 Index tumbled 2.6% after yesterday’s holiday, while the yen was mostly unchanged versus the U.S. dollar. The yen remains near multi-decade lows versus the greenback given the divergence of monetary policies. South Korea's Kospi Index fell 1.8% after a return to action following a holiday, Australia's S&P/ASX 200 Index declined 0.3%, the Hong Kong Hang Seng Index lost 2.2%, and India's S&P BSE Sensex 30 decreased 1.5%. China's Shanghai Composite Index bucked the trend by ending the day 0.2% higher.
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