Led by the mega caps, equites slid again on several reasons. Wholesale inflation (PPI) rose slightly in November from a month earlier, driven by higher energy costs. Some believe this is structurally problematic as producer prices are running well above consumer inflation and the gap is widening. Typically, when this happens, margin compression occurs or there is a delayed pass through, not relief.
Is this the result of tariffs where producers, countries and middlemen have been absorbing the increased costs so not to lose market share?
Is the PPI adding more uncertainty at the Fed as there is perhaps now a challenging trade off as core PPI is still elevated to the central bank’s 2% inflation target while job growth is softening?
November retail sales were also stronger than expected. What impact will this data point have upon the Fed’s thinking?
Geopolitics were also front and center. The unrest in Iran has caused oil to rise to the highest level since October. What will be the US response to the unrest?
And then there is Greenland. Is the Administration just posturing? Polls suggest there is little support for any military action.
Regarding earnings, C and BAC surprised on the upside while WFC surprised on the downside. Perhaps of significance non-performing assets are not rising and the addition to loan loss reserves were not outside of the norm.
After considerable hype the week before, little attention was focused upon a potential Supreme Court ruling on the tariffs. One did not occur and the question as to when has yet to be answered.
Last night the foreign markets were mixed. London was up 0.44%, Paris down 0.39% and Frankfurt down 0.11%. China was down 0.33%, Japan down 0.42% and Hang Seng down 0.28%.
Dow and NASDAQ futures are flat and up 0.6% on Taiwan Semiconductor’s earnings.. The 10-year is off 4/32 to yield 4.15%.
