Market Watch: Oct. 14, 2022

U.S. and Canadian stock indexes registered minor losses on Wednesday as investors anxiously awaited Thursday’s latest U.S. inflation data. Heightening investor worries was Wednesday afternoon’s release of the Fed’s September minutes, which showed officials remain acutely concerned over the threat of high inflation.

According to data released Thursday morning, overall U.S. inflation rose 8.2 per cent in September (year over year), which was slightly down from August’s 8.3 per cent pace. More troubling, however, was the latest core inflation reading, which strips out energy and food prices. The core index climbed 6.6 per cent (year over over), the fastest pace of annual increase since 1982. Although North American equity markets fell sharply Thursday in early trading, indexes stabilized after the selloff, mounting an almost inexplicable comeback throughout the day. By Thursday’s close, the Dow had surged more than 800 points, the S&P 500 jumped 93, and the Nasdaq climbed 232 points. In Canada, the TSX also turned in a strong performance, adding 407 points, buoyed by energy and financials.

Dow, TSX and S&P 500 Gain Ground; Nasdaq Slightly Off

For the four trading days covered in this report, the Dow rose 742 points to close at 30,039, the S&P 500 added 30 points to settle at 3,670, while the tech-heavy Nasdaq inched 3 points lower to close at 10,649. In Canada, the TSX climbed 31 points to end at 18,614.

Strategy

Headline CPI eased slightly but core inflation increased to a 40-year high

The U.S. consumer price index (CPI) recorded a year-over-year (YoY) increase of 8.2 per cent in September, higher than consensus estimates of 8.1 per cent but lower than August’s figure of 8.3 per cent, according to data released by the Bureau of Labor Statistics (BLS). Prices rose 0.4 per cent on a month-over-month (MoM) basis, significantly higher than both consensus projections (0.2 per cent) and the previous month’s reading (0.1 per cent). Price pressures were broad-based, with increases seen in the cost of food (+0.8 per cent), new vehicles (+0.7 per cent), transportation (+1.9 per cent), and medical services (+1.0 per cent). Shelter, which accounts for a third of the CPI basket, continued to cast upward pressure on inflation with both primary residence and owner’s equivalent rents rising by 0.8 per cent.

Conversely, lower gas prices (-4.9 per cent) helped to offset some of the upward pressure on CPI, along with used vehicles (-1.1 per cent) and apparel (-0.3 per cent). Core CPI, which excludes the volatile food and energy categories, remains a source of concern, rising 6.6 per cent YoY (6.5 per cent expected/6.3 per cent in August) and 0.6 per cent MoM (0.4 per cent expected/0.6 per cent in August). High inflation has continued to erode purchasing power, despite businesses raising wages to attract talent amidst a tight labour market. The BLS data also showed that inflation-adjusted hourly earnings contracted by 3.0 per cent in September. Meanwhile, a separate report also released by the Department of Labor showed that unemployment claims climbed for the second consecutive week to 228,000 (+9,000) while continuing claims remained little changed at 1.37 million.

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by Alessia Proietti

Market Watch: Oct. 14, 2022

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