U.S. Stocks Lack Direction, Central Bankers Talk Tough

Barry Adams
29 Jun, 2022
New York City

Market averages in listless trading searched for lower levels as rate hike and recession worries dominated trading sentiment today. 

The first quarter GDP shrink was revised higher to 1.6% annual rate from the previous estimate of 1.5%, the Bureau of Economic Analysis said today. 

The decrease was revised down 0.1 percentage point from the second estimate released in May. 

In the first quarter, there was a resurgence of COVID-19 cases from the Omicron variant and decreases in government pandemic assistance payments.

The latest comments from the Fed Chairman Powell at a panel of central bankers suggested faster and higher rate hikes at the next month's rate setting meeting. 

Separately, Federal Reserve Bank of Cleveland President Loretta Mester said she plans to propose a 75 basis point rate increase at the meeting of policy makers on July 17 if economic conditions remain the same. 

Central bankers struck a hawkish tone on inflation and future path of rate hikes, but most of the latest bout of inflation is driven by persistent supply shocks. 

Central bankers have still not reckoned the loose monetary policy and reckless money printing since the Great Recession of 2008-09 are two major drivers of current inflation. 

The U.S. consumer price index is hovering near 9% and the fed fund rates are still below 2%. 

The Fed fund rates have been lagging inflation rate for more than 17 months in a row.  

The S&P 500 index fell 0.3% to 3,811.27 and the Nasdaq Composite index eased 0.4% to 11,136.27. 

Futures of crude oil gained 80 cents to $112.60 a barrel and natural gas rose 0.5 cent to $6.62 a unit. 

The yield on 10-year Treasury notes inched lower to 3.106%. 

Bed Bath & Beyond plunged 21% to $5.16 after the retailer reported sharply lower than expected revenues and earnings and the company also said its chief executive has departed. 

Carnival dropped 13.9% to $8.90 after the cruise line operator's price target was cut in half by Morgan Stanley. 

The broker also said that the stock could drop to zero in the event of another demand shock. 

Walt Disney declined 0.5% to $95.48 after the company extended the contract of chief executive Bob Chapek. 

 

European Indexes Decline On Powerless Central Bankers 

Major averages in Europe were on the decline in cautious trading after comments from the central bank leaders and Spain's inflation surged to a record high. 

investors have been on the defensive after a 3-day rally in crude oil prices stoked fears of another hike in inflation with no end in sight for the war in Ukraine. 

Turkey agreed to let Finland and Sweden join the military alliance NATO, Secretary General Jens Stoltenberg said. 

The expansion of NATO is only going to escalate hostilities with Russia and prolong the war in Ukraine and further fuel energy and food inflation. 

Investors also digested latest comments from the ECB President Christine Lagarde, the Fed Chairman Jerome Powell, and the Bank of England Governor Andrew Baile at a gathering in Sintra, Portugal. 

However, central banks are powerless in impacting inflation fueled by supply disruptions linked to coronavirus and Ukraine war. 

The Economic Sentiment Indicator dropped in both the EU and the euro zone. 

The ESI declined  in the EU by 1.7 points to 102.5 and in the euro area fell -1.0 point to 104. 

The Employment Expectations Indicator also decreased -1.6 points to 110.6 in the EU and -1.7 points to 110.9 in the euro area. 

Spain's consumer inflation in June soared to 10.2% from 8.7% in May and 2.7% a year ago, the statistical office reported today. 

Spain's inflation was record high in 37 years since 1985. 

 Germany also reported elevated inflation in June, according to the Federal Statistical Office destatis in Wiesbaden, Germany. 

Consumer prices rose 7.6% in June from a year ago and rose 0.1% from May. The CPI in May rose at 7.6% from a year ago. 

The DAX index declined 1.4% to 13,050.33, the CAC-40 index fell 0.81% to 6,037.09, and the FTSE 100 index added 0.04% to 7,327.01. 

The U.K. retail prices rose at the fastest pace since 2008 according to the data released by the British Retail Consortium. 

 The BRC-NielsenIQ shop price index increased 3.1% after rising at 2.8% in May on an annual basis. 

Resource stocks rose after crude oil, natural gas, and base metal prices rose for the third day in a row. 

Antofagasta, Glencore, and Anglo American declined more than 2% despite the rise in commodities prices but worries on the global economic slowdown loomed trading sentiment. 

Essilor Luxottica declined 2.3% to 140.94 euros after Leonardo Del Vecchio, the chairman of the eyeglass retailer and one of the richest business groups in Italy, passed away at the age of 87.  

Hornbach Baumarkt, the do-it-yourself store chain, declined 2.2% to 79.65 euros after the company reported first quarter profit declined. 

Revenues in the fiscal year 2022/23 first quarter ending in May rose 8.1% to 1.81 billion euros but net income declined 9.4% to 106.9 million euros.  

 

Rising Oil Prices Dampen Sentiment in Asian Stocks and Currencies 

Markets in Asia closed down after the crude energy prices resumed the advance and currencies in the region extended losses after the U.S. dollar gained. 

The yen dropped to a new 22-year low and the rupee fell to a record low. Currencies in Thailand, Indonesia, and Philippines remained depressed. 

Across Asia, indexes closed lower following weak markets in the U.S. and weaker sentiment in the region. 

Investors have been on the defensive after a 3-day rally in crude oil prices stoked fears of another hike in inflation with no end in sight for the war in Ukraine. 

Turkey agreed to let Finland and Sweden join the military alliance NATO, Secretary General Jens Stoltenberg said. 

The expansion of NATO is only going to escalate hostilities with Russia and prolong the war in Ukraine and further fuel energy and food inflation. 

The Nikkei 225 index fell 0.9% to 26,804.60, the Hang Seng index declined 1.9% to 21,996.89, and the Shanghai index dropped 1.4% to 3,361.52. 

Tech stocks led the decliners in Tokyo trading following 3% decline in tech heavy Nasdaq index in overnight trading in New York. 

Softbank, Advantest, and Tokyo Electron dropped between 1% and 3%. 

Tokyo Electric Power soared 5.3% to 579.0 yen after Prime Minister Fumio Kishida urged to increase the use of nuclear power to meet the rising demand from the latest heat wave engulfing the capital city. 

The sentiment in the region was weak on the widening perception that a global economic slowdown may not be averted. 

The resurgent dollar also knocked the yen to its 22-year low of 136.52 and the Korean won to 1,296.97. 

The Kospi average dropped 1.82% to 2,377.99 after the latest consumer sentiment survey showed a sharp decline in consumer confidence elevated food and energy price inflation.  

Rupee traded down 0.2% to 78,95 against one U.S. dollar extending this year's loss to 5.8%. 

The Sensex index declined 150.48 or 0.3% to 53,026.97 and the Nifty index fell 51.10 or 0.3% to 15,799.10.