- Apple setback after court ruling
- Alibaba and Hang Seng fall
- US PPI reaches record levels
Stocks are trading a tad firmer in the early part of the session, after a tough-ish week. US indices fell for a fifth straight day on Friday, weighed down by Apple’s (AAPL) setback, with the stock falling over 3 per cent after a court dealt a big blow to its app store payment model. Tesla (TSLA) shares fell 2.5 per cent after Cathie Wood’s Ark group sold down it's holdings. More than a whiff of mega cap tech/growth fading – question is whether we get the rotation into cyclicals to keep the market grinding higher. Dip buyers failed to come in last week so looking perhaps to see whether there are further losses to come. Futures are this morning trading in the green. Meanwhile inflation is still a problem, with US producer prices rising 8.3 per cent.
China’s regulatory crackdown on big tech continues, with Beijing planning to break up Ant’s mobile platform Alipay, sending Alibaba (9988) shares down 5 per cent in Hong Kong and the broader Hang Seng Index (HSI) down by 2 per cent. Nevertheless, there is a mild risk-on feel to the start of the new trading week.
The FTSE 100 is up half of one per cent after it tested the 7,000 support last week, which has held for now. The index is slap in the middle of the range it’s treaded since April, failing to break out in any meaningful way. Utilities, energy and financials doing the lifting this morning, with Royal Mail (RMG) and National Grid (NG) at the top of the leader board. Associated British Foods (ABF) fell to the bottom despite raising its profit target for the year on improved margins as supply chain problems hurt sales. SThree (STEM) shares jumped another 6 per cent after it also said profits would be ahead of expectations – staffing shortages playing into the hands of recruiters.
Stagflation
The US PPI reading for August was hot, with prices up 0.7 per cent month-on-month and sending the annual increase to 8.3 per cent, the biggest since records began in 2010. Whilst some may argue that this is transitory, and due to supply chain bottleneck, shortage of vessels etc, and therefore ‘nothing the Fed can do about it’, you have to ask yourself whether expansionary monetary policy is actually doing more harm than good right now.
Light day for data so all eyes on the US consumer price index tomorrow. The key inflation reading for the month of August is set to come in at 5.3 per cent, according to consensus. In July, inflation steadied at a 13-year high of 5.4 per cent. Core inflation rose 4.3 per cent. But there was some moderation in the month-on-month increase, with core at +0.3 per cent vs +0.9 per cent in June. Vehicle prices have been one of the main drivers of the increase, but the pace of price increases slowed almost to a halt in July. A hotter-than-expected reading tomorrow could see the market adjust its view of when the Federal Reserve begins tapering asset purchases. Cooling in inflation pressures would be positive for market sentiment.
Crude oil prices are firmer with WTI (spot) nudging its head above $70 again. Supply remains affected by Hurricane Ida. OPEC is due to release its monthly outlook later today. In FX, the dollar is firmer, with the euro dropping to its weakest since the end of August. GBPUSD is just about holding on to 1.38. Hard to talk meaningfully about FX trades right now with everything so range bound and trading sideways. Elsewhere, Bitcoin is lower again around $4k and chart action looks dicey.
Neil Wilson is chief market analyst at Markets.com
