Stocks struggle for direction after red hot inflation data

By Admin On Jul 13, 2022 9

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U.S. stocks gyrated Wednesday as investors mulled hotter-than-expected inflation data for June.

The S&P 500 dipped below breakeven, and the Dow Jones Industrial Average shed 110 points, or roughly 0.4% as of 1:38 p.m. ET. The tech-heavy Nasdaq Composite ticked up 0.2%.

In June, headline inflation rose 9.1%, the most since November 1981 and well above estimates for an 8.8% increase in prices.

Treasury yields were also in focus on Wednesday morning, with the most dramatic moves happening at the front end of the yield curve. The 10-year stood at 3.04% following the inflation print, with 2-year yields rising as high as 3.17%, further inverting the yield curve. An inverted yield curve has typically preceded recessions.

The euro also fell below parity — or a 1:1 value — with the dollar early Wednesday, the first time the currency’s value has slipped below this mark since 2002.

June’s figures also likely seal another 0.75% increase in interest rates from the Federal Reserve at the conclusion of its July 26-27 policy meeting.

“Overall, this report confirms that the Fed will need to hike by 75bp again at the end-July meeting,” Capital Economics Senior U.S. Economist Michael Pearce said. “While some will draw parallels with the shockingly bad May CPI report, the backdrop is markedly different — commodity prices have fallen sharply and we’ve seen clearer signs of an economic slowdown, both of which will contribute to weaker price pressures ahead.”

In addition to the latest inflation print, a lineup of quarterly results are also in the queue for investors as major companies kickstart the new earnings season.

Delta Air Lines (DAL) reported earnings that missed expectations on Wednesday morning as higher costs bit the airline currently battling with excess demand and constrained capacity.

PepsiCo (PEP) was an early reporter on Tuesday. The beverage-maker beat Wall Street estimates but warned of inflationary pressures on the business.

“Balance of the year inflation is higher than it is for the first half of the year,” Pepsi CFO Hugh Johnston told analysts in a call. “I think we’ve mentioned in the past, we’re in the teens in terms of commodity inflation. That will continue, but a little bit higher in the back half.”

Rising prices associated with inflation and higher interest rates will be in focus among investors as other big names among Corporate America release results. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) are among the big banks to follow suit Thursday and Friday.