Market Averages Turned Lower After Rate Path and Valuation Worries Resurfaced

Barry Adams
21 Jun, 2023
New York City

Stocks struggled on Wall Street and Treasury yields traded volatile following comments from Fed Chairman Powell. 

In his prepared remarks for his testimony to be delivered to the House Financial Services Committee, Powell said that the latest rate pause is likely to be followed by rate hikes as inflation remains too high for the central bank's comfort.

"Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go," Chairman Powell noted in his prepared remark for lawmakers. 

"Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets," highlighted Powell while reviewing the current economic situation. 

Nearly all FOMC participants expect that "it will be appropriate to raise interest rates somewhat further by the end of the year."

The Federal Reserve's hawkish stance has failed to bring down inflation to its target rate of 2% despite the increase in rates by five percentage points over the last fifteen months. 

Overall inflation has cooled in the last six months but that is largely because of the sharp fall in crude oil and natural gas prices but housing prices are still 50% to 150% above the pre-Covid 2019 levels in the most urban areas.   

Crude oil traded in a tight range not far from its 15-month low as demand growth following the ending of China's "zero Covid" remains uncertain and weaker-than-expected. 

Tech stocks took a breather from the previous week's market rally fueled by optimism surrounding the new business cycle driven by AI spending. 

 

U.S. Indexes & Yields 

The S&P 500 index futures decreased 0.1% to 4,382.73 and the Nasdaq Composite futures declined 0.7% to 13,574.97.

The yield on 2-year Treasury notes increased to 4.72%, 10-year Treasury notes edged up to 3.75% and 30-year Treasury bonds edged up to 3.84%. 

Crude oil decreased $0.02 to $71.54 a barrel and natural gas prices decreased 1 cent to $2.45 a thermal unit. 

 

U.S. Stock Movers

FedEx Corp declined 3% to $224.01 after the parcel delivery company grounded additional planes because of lack of demand. 

FedEx reported weaker-than-expected quarterly revenue but adjusted earnings were ahead of market expectations. 

Rivian Automotive Inc increased 1.6% to $15.70 after the company announced that its customers will be able to charge vehicles made by the company using Tesla electric charging stations next year. 

Winnebago Industries, Inc declined 8.1% to $59.01 after the maker of RVs reported sales declined 38% in its latest quarter because of heavier discounting and macroeconomic headwinds. 

Cryptocurrencies linked stocks advanced after Bitcoin continued to scale higher. 

Coinbase Global increased 2.5% to $58.41, MicroStrategy advanced 3.3% to $323.31 and Riot Platforms Inc surged 4.4% to $11.79. 

 

Rate Worries Keep European Markets In Check 

European markets traded down for the third day in a row on valuation worries and economic uncertainties. 

Benchmark indexes in Frankfurt and Paris edged lower but traded near record highs. 

The benchmark index in London declined after the latest inflation data reinforced additional tightening by the Bank of England and core inflation accelerated to a 31-year high. 

The latest inflation data also led many to forecast that the Bank of England may lift interest rates by 50 basis points rather than 25 basis points as had been expected on Thursday. 

Higher interest rates are expected to affect 800,000 mortgages due for refinancing in the second half of this year, according to the financial service industry association UK Finance. 

Higher UK mortgage rates will force most borrowers to cut spending elsewhere, affecting overall household spending and GDP growth. 

Automakers were in focus after new car registration rose for the tenth month in a row. 

 

UK Inflation Held Steady at 8.7%

The consumer price inflation in May matched the April level of 8.7%, the Office for National Statistics reported Wednesday. 

Core inflation, which excludes food, energy, alcohol and tobacco, accelerated to 7.1%, the highest level since March 1992. 

The inflation remained at a 13-month low but significantly above the 2% target set by the Bank of England, adding more urgency to policymakers' tightening campaign. 

Food inflation slowed to 18.3% from 19.0% and energy price decline increased to 13.1% from 8.9% offsetting air travel inflation to 31.4% from 12.6% and recreational and cultural goods and services to 6.7% from 6.3%. 

 

EU Passenger Car Registration Up 18.5% in May

Passenger car registration in the European Union increased for the tenth month in a row, the European Automobiles Manufacturers Association reported Wednesday. 

Passenger car registration increased 18.5% to 938,950 units, and all four largest markets reported an increase. 

Registration in Italy increased 23.1%, in Germany 19.2%, in France 14.8% and in Spain 8.3%.  

Battery powered cars soared 70.9% to 129,847 units, lifting its market share by four percentage points from a year ago to 13.8%.  

Automobile registration in the first five months increased 18% to 4.4 million but still 23% below 5.7 million in the period a year ago. 

 

Europe Indexes & Yields 

The DAX index decreased 0.6% to 16,023.13,  the CAC-40 index declined 0.5% to 7,260.97 and the FTSE 100 index increased 0.1% to 7,559.18. 

The yield on 10-year German Bunds inched lower to 2.41%, French bonds traded lower to 2.96%, the UK gilts edged down to 4.41% and Italian bonds decreased to 4.05%.

The euro edged lower to $1.09, the British pound to $1.27 and the Swiss franc to 89.75 cents.

Brent crude increased $1.32 to $77.30 a barrel and the Dutch TTF natural gas decreased €1.97 to €36.79 per MWh.

 

Europe Stock Movers

Automakers were in focus after new passenger car registration in May increased 18.5% following a 17.2% rise in April. 

BMW AG increased 0.6% to €111.20, Stellantis NV added 1.1% to €15.55 and Renault SA jumped 2.6% to €36.44. 

Banks traded higher in the region after UK inflation was ahead of expectations and bond yields advanced on the hopes of a rate hike cycle to continue. 

Deutsche Bank AG increased 1.6% to €9.48, Commerzbank advanced 1.8% to €10.38, BNP Paribas jumped 1.1% to €57.34, Barclays inched lower 0.9% to 152.88 pence and HSBC Holdings Plc advanced 0.4% to 617.50 pence. 

Deutsche Lufthansa AG increased 1.1% to €9.37 after the German airline sold its travel solution business Lufthansa AirPlus Servicekarten GmbH to Sweden-based SEB Kort Bank AB for €450 million. 

VEON Ltd declined 1.4% to 72 euro cents after the company announced its plan to invest $600 million in its Ukrainian subsidiary Kyivstar, the largest mobile telecom network in Ukraine.