Futures in the United States and Europe are trading higher today, as the S&P 500 shattered a three-day losing streak after reporting better-than-expected earnings. Sentiment among traders is also boosted by the US inflation report, which came in slightly higher than expected.
Today, investors will be looking at the Bureau of Labor Statistics’ Producer Price Index (PPI) to see how rising input costs are likely to affect manufacturers and, eventually, how much of the inflation will be passed on to final consumers in coming months. Furthermore, the retail sales and unemployment claims data are also scheduled to be released today. Another event that could cause volatility in markets is FOMC Member Barkin’s remarks at the Cornell Club of New York.
In yesterday’s session, the Dow Jones Industrial Average was flat, and the S&P 500 index jumped 0.30%. The Nasdaq, the tech-savvy index, rose 0.73%, and the Russell 2000, the small-cap index, surged 0.34%.
Stock traders will be watching how stock market indices react to the pandemic’s high supply chain issues, surge in power prices, and the Federal Reserve’s massive stimulus tapering off before the end of 2021. Investors are also assessing whether the economic recovery seen earlier in 2021 is long-term or will it collapse in the near future.
FOMC minutes for September hinted that the Fed could start winding down its quantitative easing in mid-November or mid-December. A one-month difference is not likely to make much difference in the grand scheme of things, but the committee members’ being divided is fuelling uncertainty about when the actual lift off is likely to take place.
The main issue for businesses continues to be supply chain bottlenecks, as evidenced by investor calls on Tuesday, where the term “supply chain” was mentioned roughly 3,000 times. The Biden administration is trying its best to alleviate these issues before the Christmas season, but the fruits of its labor are likely to be limited. Policymakers, over the past few weeks, are being criticized for focusing more on social issues rather than diverting their attention to ground problems that are making the lives of Americans very difficult.
Having said that, the macroeconomic environment still supports equity markets in the short term, but investors can expect a modest slowdown in economic recovery in Europe and the United States. Moreover, investors should not be concerned about stagflation for the time being because the US economy is still growing at a rate well above trend.
JPMorgan outperformed earnings expectations, earning $3.74 per share versus $3.00 expected. Similarly, the bank reported revenue of $30.44 billion versus the expected $29.8 billion. The strength seen in earnings is backed by strong growth of the U.S. economy, despite the dulling influence of supply chain constraints and the Delta variant. The banks also released credit reserves amounting to $2.1 billion as JPMorgan sees its future outlook improving along with the U.S. economy.
Similarly, Delta Airlines outperformed expectations, earning 30 cents per share versus the 17 cents expected. In addition to this, the airline’s revenue was $9.15 billion, up from $8.4 billion expected. However, the company’s stock price dipped 5.8% and settled at $41.03. This was because Delta stated that its costs excluding fuel are expected to surge between 6% and 8% in the next quarter.
Investors should note that the consumer price data was released on Wednesday and the consumer price index for all items rose 0.4% in September while the expected jump was 0.3%. Consumer prices jumped 5.4% on a year-over-year basis, while the projected number was 5.3%. On the other hand, core inflation, which excludes energy and food prices, hopped 0.2% in September versus the expected 0.3% and jumped 4% on a year-on-year basis as expected.
Oil prices fell yesterday after China, the world’s second largest economy, released data showing that its imports tumbled 15% year on year in September. Nowadays, advanced economies such as China, Europe, and India are facing a power crisis and a natural gas and coal deficit, which is why they are shifting to oil for power generation. As a result of the increased demand, oil prices have risen. However, according to an OPEC report, global oil demand is likely to fall in coming months, but if the energy crisis worsens, demand for oil could rise as well. Similarly, Russia’s President, Vladimir Putin, stated that oil prices could reach $100 per barrel going forward.
Gold rose on Wednesday after data showed that consumer prices were still rising in the midst of a power crisis within major economies. Similarly, the dollar fell in value against other major currencies, which helped the precious metal. Although the yellow metal has attempted to rise, the momentum is insufficient to achieve significant gains as treasury yields continue to surge as investors expect tapering to begin in 2021.
Stock markets in Asia climbed after producer prices jumped the most since 1995. As of 12.35 p.m. EST, the Nikkei rose 1.29% and the Shanghai index jumped 0.15%. The ASX 200 index soared 0.93% and the Seoul Kospi hopped 0.97%.