13 Sep 2022

Last night, the three major U.S. stock indexes closed up collectively. As of the close, the Dow closed up 0.71%, the Nasdaq closed up 1.27%, and the S&P closed up 1.06%. The yield on the 10-year U.S. Treasury bond rose 1.296% to close at 3.362, a difference of about -21 basis points compared with the yield on the two-year Treasury bond. The fear index VIX closed up 4.74%. Brent crude closed up 2.24%. Spot gold closed up 0.43% at $1,724.64 an ounce. The dollar index remained high, closing at 108.31.

The three major stock indexes collectively opened higher. Commodity prices rose due to a weaker dollar, crude oil futures extended gains, and WTI crude oil rose more than 2% on the day. Concerns about global demand remain, with central banks taking steps to cool inflation, while investors focus on possible OPEC+ production cuts. Institutional analysis pointed out that the current focus may be on the demand side, but we cannot ignore the recent warnings from OPEC+ about price volatility and disconnection from fundamentals.

Analysts at Wells Fargo expect U.S. inflation to ease further in August. Specifically, U.S. CPI is expected to drop 0.2% in August, the largest monthly decline since the spring of 2020. A further drop in gasoline prices is expected to lead to lower overall CPI, while additional returns on travel services and used cars should help keep core CPI up 0.4% month-on-month. The Fed is expected to be encouraged by the continued decline in inflation since June, but core CPI will continue to be well above the Fed's target. Lower commodity prices and easing supply chain bottlenecks in recent months point to inflation cooling in the coming months, but labor cost growth remains strong, suggesting it will not be easy to bring inflation back to the Fed's target.

The Fed faces a tricky situation in which it exits its balance sheet shrinking policy prematurely. Just three months into the Fed's unwinding of its balance sheet, $809 billion has flowed out, and analysts are already talking about the possibility of an early end to the policy and how the Fed might coordinate an exit from it. The question is whether liquidity in the financial system is likely to fall below ideal levels as the Fed raises rates to fight inflation. While the Fed wants to drain liquidity, it doesn't want to drain too much too quickly. JPMorgan analyst Alex Roever said there have been $809 billion in outflows since the start of the balance sheet, just about $1 trillion away from the New York Fed's estimated $2-2.5 trillion threshold.

Apple rose 3.85% as Apple's iPhone hardware and service subscription service may still arrive in 2022.

Google rose 0.08%. Google canceled the next-generation Pixelbook project and disbanded the team in charge.

Amazon rose 2.39%, as Bezos's space travel company Blue Origin abandoned plans to launch an unmanned rocket launch in western Texas.

Tesla rose 1.58% as it plans to build a battery-grade lithium hydroxide refining facility in North America and is already applying for tax breaks.

Meta fell 0.11%, and Meta disbanded the innovation team.

Sources from: Investing.com; Reuters.com

Louis Yap

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