Resurgent Inflation Worries Dragged U.S, Indexes Lower, Trade Deficit Expanded

Barry Adams
06 Sep, 2023
New York City

Market indexes were under pressure and tech stocks led decliners after Treasury yields rose. 

Short term Treasury yields advanced following the release of services survey indicating prices are still rising at a faster pace than anticipated. 

The ISM Services Purchasing Managers' Index unexpectedly advanced to 54.5 in August, pointing to the strongest growth in the services sector in six months, compared to 52.7 in July, the Institute for Supply Management reported Wednesday.  

The reading above 50 indicated expansion and below that level showed contraction. 

Business activities and new orders accelerated, leading to faster gains in employment and inventories. 

However, market participants focused on price pressures in the services sector after the price index accelerated to 58.9 from 56.8 while the backlog of orders contracted.   

Higher price pressure drove market indexes lower on the worries that the Fed may pause at the next meeting this month but rates are likely to stay elevated longer than previously estimated. 

 

U.S. Trade Deficit Widened In July 

The US goods and services trade deficit widened to $65 billion in July from a downwardly revised $63.7 billion in June, the Bureau of Economic Analysis reported Wednesday. 

The July increase in the goods and services deficit reflected a rise in the goods deficit of $2 billion to $90 billion and an increase in the services surplus of $0.7 billion to $25 billion.

Exports rose 1.6% to a four-month high of $251.7 billion, led by sales of vehicles, pharmaceutical preparations and a surge in tourist arrivals. 

Moreover, imports advanced 1.7% to $316.7 billion, driven by higher imports of household goods, semiconductors and computing and communication devices.  

On an annual basis, the overall trade deficit declined 21.4% to $128.3 billion, from the same period a year ago. Exports increased $27.3 billion or 1.6% and imports decreased $101 billion or 4.3%.

The politically sensitive deficit with China in July rose to $1.2 billion to $24 billion and the surplus with Hong Kong declined $1 billion to $1.5 billion. 

The deficit with Mexico increased $3.1 billion to $42.1 billion in the second quarter after exports declined $5.7 billion to $87.4 billion and imports decreased $2.6 billion to $129.5 billion.

The deficit with the European Union decreased $6.2 billion to $30.1 billion in the second quarter after exports fell $3.2 billion to $153.9 billion and imports decreased $9.4 billion to $184.1 billion

The deficit with mainland China was $65 billion in the second quarter. 

 

U.S. Indexes & Yields 

The S&P 500 index traded down 0.7% to 4,464.91 and the Nasdaq Composite fell 0.9% to 13,891.14. 

The yield on 2-year Treasury notes increased to 5.03%, 10-year Treasury notes inched higher to 4.29% and 30-year Treasury bonds edged down to 4.36%. 

Crude oil reached a 10-month high after Saudi Arabia and Russia extended their voluntary production cuts to the end of the year. 

Crude oil increased $0.45 to $86.27 a barrel and natural gas prices decreased 5 cents to $2.53 a thermal unit. 

 

U.S. Stock Movers 

Southwest Airlines Co declined 3.2% to $29.82 after the regional airline estimated August bookings were near the "lower-end" of the company's expectations. 

The airline also added third quarter revenue per seat mile is likely to be near the low end of its previous estimate.  

AeroVironment, Inc jumped 27% to $121.39 after the company reported fiscal first quarter revenue of $152 million and adjusted earnings per share surged to $1.0.  

Roku Inc soared 6.8% to $88.86 after the company lifted its third quarter revenue to a new range between $835 million and $875 million from the previous estimate of $815 million. 

The company also announced its plan to lay off 10% of its staff and review its aggregated content to trim costs and consolidate its office space.