Stocks fell on Wall Street after yesterday’s blowout inflation print, which showed prices rising in the US at the fastest pace in 30 years. Not only the pace but the breadth – the reading showed a broadening out in inflationary pressures and pointed to even racier readings over the coming months. Core inflation year-over-year could be heading to 6.5%, according to Pantheon Macroeconomics. Does it make the Fed hike earlier? Futures prices indicate the market pulled forward the bet on lift-off for rates from September to July, so there was some response in expectation the Fed might actually respond to the soaring inflation. That print was so hot markets are going to have to think more seriously about inflation and a possible Fed reaction.
Rates moved, slowly then all of a sudden, on the back of inflation hitting 6.2% in October. Benchmark 10-Year Treasury yields enjoyed their biggest one-day rise in a year and across the curve we saw movement higher. But not fast enough – real rates plunged to hit record lows, sending Gold to $1,868, its highest since June. A US holiday means no major data later in the session, but stock markets remain open. UK GDP figures today showed the economy grew by 1.3% in the third quarter – anaemic at best and in real terms not growing.
The dollar has rallied aggressively in the wake of the inflation report. The dollar index blew through a heap of horizontal resistance to take a 95 handle and we have fresh yearly lows for the euro and sterling. The mood seems to be that the Fed will move first – do not discount the Bank of England just yet. December remains ‘live’, even if we cannot believe anything Bailey says now. Another factor in the mix - there is a level of Brexit headline risk premium attached to the pound right now that we maybe haven’t really contended with for some time. Threats are flying around but so far, no action to destabilise the pound. The ECB keeps pushing back against any kind of rate hike talk for 2022.
European stocks were broadly weaker this morning after the first back-to-back declines on Wall Street for a month. Paris eked a small gain as ArcelorMittal (AS:MT) posted its best quarterly profit in 13 years. We’d been suggesting a pullback was likely for the major US markets; so far it’s only mild but if inflation fears lead to expectations the Fed will tighten policy then stocks could have further to decline. As far as European markets go, watch cases on the continent and the political appetite to reimpose restrictions.
But UK stocks are outperforming. The FTSE 100 made a fresh post-pandemic high at 7,368 this morning, albeit supported chiefly by the weaker pound. Miners rose, but Auto Trader (LON:AUTOA) stole the show with a pop of 11% after posting record half-year revenues and profits. Burberry (LON:BRBY) was at the back of the class with Johnson Matthey (LON:JMAT); the former declining 9% despite revenues recovering, profits beating expectations and the board reinstating the dividend and starting a buyback programme. For the latter, a decision to offload its capital intensive battery operation dealt a blow to hopes it could be a major player in the EV growth space in the coming years – shares declined more than 17%.
More Musk things: the mercurial Tesla (NASDAQ:TSLA) chief has sold about $5bn worth of his stock this week, according to regulatory filings published last night. About a fifth of the sale was part of a pre-arranged stock trading plan adopted in September. The rest at the behest of his followers on Twitter (NYSE:TWTR). He’d have to sell more than twice than again to meet his 10% target offered to followers on Twitter. Shares rallied 4% on Wednesday to reduce the weekly losses somewhat, and after hours trading places them about 2-3% higher this morning. Meanwhile rival Rivian (NASDAQ:RIVN) got off to a racing start to life on the Nasdaq as shares jumped by a third from the offer price to $100, at point reaching $119 in a frenzied market debut.
And finally, Walt Disney (NYSE:DIS) shares are 5% lower in the pre-market after it missed on revenues and profits. EPS of $0.37 vs $0.51 expected, while revenues of $18.53bn were a little light of forecast. Disney+ added 2.1m subscribers – slowdown to be expected as economies emerge from lockdowns. CEO Chapek reiterated the goal to hit 230-260m subs by 2024. More Hotstar subs in the Disney+ mix meant average revenues per user were 9% down on last year.